Question: In the course of routine checking of all journal entries prior to preparing year-end reports, Betty Eller discovered several strange entries. She recalled that the presidents son Joe had come in to help out during an especially busy time and that he had recorded some journal entries. She was relieved that there were only a few of his entries, and even more relieved that he had included rather lengthy explanations. The entries Joe made were:

This is how I answered:

Professor Feedback: PLEASE HELP FIX IT

(4) Work in Process Inventory 3.000 Raw Materials Inventory 3.000 (This is for the glue used in the factory. I know we used this to make the products, even though we didn't use very much on any one of the products. I got it out of inventory, so I credited an inventory account.) If the entry (4) was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated? BI UT TIL | If not corrected both the income statement and the balance sheet are to be affected. If those unles that were being processed during the month result in being sold then unfortunately the cost of goods sold is overstated, while Income tax expense and net Income is found to be understated. This results in the Balance sheet to understate retained earnings and income tax payable. The opposite of the error in enery2 would occur: underapplied overhead to be understated or overapplied overhead to be overstated. In result this has direct affects on cost of goods sold, due to the over/underappiled balance, which also affects retained earnings 106 Word(s) 4. OH is a product cost and is not separately reported on the financial statements. What accounts are impacted on the financial statements when product costs are recorded incorrectly (hint: COGS and closing process of temporary accounts on the 1/S to the B/S)? I specifically discuss this in the recorded video lecture posted in the course announcements and covered in Chapter 4 of the text in GB518. Note: Inventory is reported at the aggregate amount of RM, WIP, FG. The errors offset in this entry and do not affect Inventory on the B/S. Assume the units in WIP were sold (i.e. impacting COGS). Also, Inventory is not impacted in this entry because the over/under-applied manufacturing OH is closed out to COGS directly then COGS is closed out to Retained Earnings