Chapter 3, Problem 3.22EX

(a)

To determine

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).

Accrued expenses:

Accrued expenses refer to the expenses that are incurred but cash is not yet paid.

The effects on the net income, if the adjusting entry for accrued expense is not recorded.

(b)

To determine

The percentage of the misstatement, if the reported income of Company C is $1,106 million.