Chapter 2, Problem 2.71CEP

(Learning Objectives 2, 3, 4: Analyze the impact of business transactions; analyze the impact of errors and compute correct amounts; journalize and post transactions in the books) Backline Advertising creates, plans, and handles advertising campaigns in a three-state area. Recently, Backline had to replace an inexperienced office worker in charge of bookkeeping because of some serious mistakes that had been uncovered in the accounting records. You have been hired to review these transactions to determine any corrections that might be necessary. In all cases, the bookkeeper made an accurate description of the transaction.

Requirements

1. 1. 1 For each of the preceding entries, indicate the effect of the error on cash, total assets, and net income. The answer for the first transaction has been provided as an example.

Date	Effect on Cash	Effect on Total Assets	Effect on Net Income
May 1	Understated $1,700	Overstated $1,700	Overstated $1,700

1. 2. What is the correct balance of cash if the balance of cash on the books before correcting the preceding transactions was $6,300?
2. 3. What is the correct amount of total assets if the total assets on the books before correcting the preceding transactions was $20,000?
3. 4. What is the correct net income for May if the reported income before correcting the preceding transactions was $9,000?