When the records of Debra Hanson Corporation were reviewed at the close of 2021, the following errors were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2020 and 2021. 20202021ItemOver-statementUnder-statementNo EffectOver-statementUnder-statementNo Effect1. Failure to record amortization of patent in 2021. 2. Failure to record the correct amount of ending 2020 inventory. The amount was understated because of an error in calculation. 3. Failure to record merchandise purchased in 2020. Merchandise was also omitted from ending inventory in 2020 but was not yet sold. 4. Failure to record accrued interest on notes payable in 2020; that amount was recorded when paid in 2021. 5. Failure to reflect supplies on hand on balance sheet at end of 2020.

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Answered: When the records of Debra Hanson…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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When the records of Debra Hanson Corporation were reviewed at the close of 2021, the following errors were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2020 and 2021.

	2020	2021
Item	Over-statement	Under-statement	No Effect	Over-statement	Under-statement	No Effect
1. Failure to record amortization of patent in 2021.
2. Failure to record the correct amount of ending 2020 inventory. The amount was understated because of an error in calculation.
3. Failure to record merchandise purchased in 2020. Merchandise was also omitted from ending inventory in 2020 but was not yet sold.
4. Failure to record accrued interest on notes payable in 2020; that amount was recorded when paid in 2021.
5. Failure to reflect supplies on hand on balance sheet at end of 2020.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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