A.

Indicate the effect of the given errors:

On the net income of the current year,
On the total current assets as of the end of the year,
On the total current liabilities as of the end of the year, and
On the balance of retained earnings as of the end of the year.
Write the words overstated, understated, or no effect in each of the space provided.

Net Current Current Retained

Error
income assets liabilities earnings
Ending merchandise inventory was
1.
understated.
2. Sales on account was understated.
3. Cash purchases was understated.
4. Purchases on account was overlooked.
5. Prepaid taxes was overlooked.
6. Unearned income was understated.
7. Accrued wages was understated.
8. Accrued interest income was understated.
9. Doubtful accounts was not adjusted.
Depreciation of the equipment was
10.
understated.
B. The following errors were discovered before preparing the closing entries of 2011 nominal
accounts. Indicate the effects of each error on the net income of 2009, 2010 and 2011. For
your answer, write the words overstated, understated, no effect, or it depends in each space
provided.

Net income
Error
2009 2010 2011
1. Ending inventory of 2010 was overstated.
2. Ending inventory of 2011 was understated.
3. Sales of 2009 was taken up in 2010.
4. Sales of 2010 was taken up in 2011.
5. Sales of 2010 was taken up in 2009.
6. Sales of 2011 was taken up in 2010.
7. Purchases of 2009 was taken up in 2010.
8. Purchases of 2010 was taken up in 2011.
9. Purchases of 2011 was taken up in 2010.
Accrued expenses at the end of 2009 was
10.
overstated.
Accrued expenses at the end of 2010 was
11.
understated.
Accrued expenses at the end of 2011 was
12.
overstated.
Prepaid expenses at the end of 2009 was
13.
understated.
Prepaid expenses at the end of 2010 was
14.
overstated.
Prepaid expenses at the end of 2011 was
15.
overstated.
Accrued income at the end of 2009 was
16.
overstated.
Accrued income at the end of 2010 was
17.
understated.
Accrued income at the end of 2011 was
18.
overstated.
Unearned income at the end of 2011 was
19.
understated.
Unearned income at the end of 2010 was
20.
understated.
Unearned income at the end of 2011 was
21.
understated.
22. Depreciation of 2009 was overstated.
23. Depreciation of 2010 was understated.
24. Depreciation of 2011 was overstated.
25. Doubtful accounts of 2009 was not taken up.
26. Doubtful accounts of 2010 was not taken up.
27. Doubtful accounts of 2011 was not taken up.