The following are independent errors made by a company that uses the periodic inventory system: a. Goods in transit, purchased on credit and shipped FOB destination, $10,000, were included in purchases but not in the physical count of ending inventory. b. Purchase of a machine for $2,000 was expensed. The machine has a 4-year life, no residual value, and straightline depreciation is used. c. Wages payable of $2,000 were not accrued. d. Payment of next years rent, $4,000, was recorded as rent expense. e. Allowance for doubtful accounts of $5,000 was not recorded. The company normally uses the aging method. f. Equipment with a book value of $70,000 and a fair value of $100,000 was sold at the beginning of the year. A 2-year, non-interest-bearing note for $129,960 was received and recorded at its face value, and a gain of $59,960 was recognized. No interest revenue was recorded and 14% is a fair rate of interest.

1. Indicate the effect of each of the errors on the companys assets, liabilities, shareholders equity, and net income in the year in which the error occurs. State whether the error causes an overstatement (+), an understatement (-), or no effect (NE).

	Assets	Liabilities	Shareholders' Equity	Net Income
a.
b.
c.
d.
e.
f.

2. Prepare entries to correct the following errors on January 1:

a. Goods in transit, purchased on credit and shipped FOB destination, $10,000, were included in purchases but not in the physical count of ending inventory.

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	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2

b. Purchase of a machine for $2,000 was expensed. The machine has a 4-year life, no residual value, and straight-line depreciation is used.

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	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3

c. Wages payable of $2,000 were not accrued. Assume the wages are unpaid at the time of the entry.

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	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2

d. Payment of next years rent, $4,000, was recorded as rent expense.

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	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2

e. Allowance for doubtful accounts of $5,000 was not recorded. The company normally uses the aging method.

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	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2

f. Equipment with a book value of $70,000 and a fair value of $100,000 was sold at the beginning of the year. A 2-year, non-interest-bearing note for $129,960 was received and recorded at its face value, and a gain of $59,960 was recognized. No interest revenue was recorded and 14% is a fair rate of interest.

f (1). Record the adjustment needed to correct the sale of equipment.

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	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2

f (2). Prepare the adjustment needed to correct interest related to the note.

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	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2