The following income statement was prepared for Frame Supplies for the year Year 1: FRAME SUPPLIES Income Statement For the Year Ended December 31, Year 1 Sales $ 76,900 Cost of goods sold (34,530) Gross margin 42,370 Operating expenses (9,100) Net income $ 33,270 During the year-end audit, the following errors were discovered: 1. An $1,495 payment for repairs was erroneously charged to the Cost of Goods Sold account. (Assume that the perpetual inventory system is used.) 2. Sales to customers for $2,313 at December 31, Year 1, were not recorded in the books for Year 1. Also, the $1,567 cost of goods sold was not recorded. 3. A mathematical error was made in determining ending inventory. Ending inventory was understated by $1,471. (The Inventory account was mistakenly written down to the Cost of Goods Sold account.) Required Determine the effect, if any, of each of the errors on the following items. Give the dollar amount of the effect and whether it would overstate (O), understate (U), or not affect (NA) the account. The first item for each error is recorded as an example. Complete this question by entering your answers in the tabs below. Error No 1 Error No 2 Error No 3 Give the dollar amount of the effect and state whether the payment made for repairs erroneously charged $1,495 to the Cost of Goods Sold account would overstate (O), understate (U), or not affect (NA) the account. The first item of the error is recorded as an example. (Input the amount as a positive value.) Amount of Error Effect NA Error No. 1 Sales, Year 1 Ending inventory, December 31, Year 1 Gross margin, Year 1 Beginning inventory, January 1, Year 2 Cost of goods sold, Year 1 Net income, Year 1 Retained earnings, December 31, Year 1 Total assets, December 31, Year 1
Error No 1 Error No 2 Error No 3 Give the dollar amount of the effect and state whether Sales to customers for $2,313 at December 31, Year 1, along with its cost of goods sold $1,567 not recorded in the books would overstate (O), understate (U), or not affect (NA) the account. The first item of the error is recorded as an example. (Input the amount as a positive value.) Amount of Effect Error $ 2,313 U Error No. 2 Sales, Year 1 Ending inventory, December 31, Year 1 Gross margin, Year 1 Beginning inventory, January 1, Year 2 Cost of goods sold, Year 1 Net income, Year 1 Retained earnings, December 31, Year 1 Total assets, December 31, Year 1 Error No 1 Error No 2 Error No 3 Give the dollar amount of the effect and state whether a mathematical error made in determining ending inventory understating the same by $1,471 would overstate (0), understate (U), or not affect (NA) the account. The first item of the error is recorded as an example. (Input the amount as a positive value.) Amount of Error Effect NA Error No. 3 Sales, Year 1 Ending inventory, December 31, Year 1 Gross margin, Year 1 Beginning inventory, January 1, Year 2 Cost of goods sold, Year 1 Net income, Year 1 Retained earnings, December 31, Year 1 Total assets, December 31, Year 1
