Explanation Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company. Asset: Assets refer to the resources owned by the business, which are utilized in the course of the business to generate revenue. Liabilities: Liabilities include the claims of the creditors on the assets of the business. The liability is the obligation of the business. The explanations for the transactions mentioned in Table (1) are given below: 1. Depreciation amounting to $950 is not recorded in the year 2013 that has reduced the depreciation expenses. So the net income is overstated by $950. The accumulated depreciation is also too low by $950 that has overstated the assets by $950 until the error is rectified. 2. Wage expenses of $500 should be increased or debited during the year 2013 because the wages were incurred in that year. This has overstated the net income by $500 as the expenses were not paid when incurred in 2013. So, there is a liability of $500 in the year 2013. Thus, liabilities were understated in the year 2013. However, in the year 2014 when the wages are recorded, the net income would be understated and the wage expense would be overstated. 3. Revenues earned during 2013 but not collected or recorded until 2014 of $600 made the net income understated by $600 in the year 2013. The accounts receivable (current asset) was also understated because the amount of $600 would be collected in the year 2014; hence, the assets were understated by $600 at the end of 2013. However, if it is not corrected, the revenue of $600 would be recorded in the year 2014, which would cause the revenues and the income in the year 2014, to be overstated...

8th Edition

ISBN: 9780078025556

Author: Robert Libby, Patricia Libby, Daniel Short

Publisher: McGraw-Hill Education

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Chapter 5, Problem 6CP

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Analyze the each error and indicate its effect on 2013 and 2014 net income, assets, and liabilities of Company M if not corrected.

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Chapter 5 Solutions

Financial Accounting, 8th Edition

Ch. 5 - Prob. 1Q Ch. 5 - Prob. 2Q Ch. 5 - Prob. 3Q Ch. 5 - Explain what a material amount is.Ch. 5 - What basis of accounting (cash or accrual) does...Ch. 5 - Prob. 6Q Ch. 5 - Prob. 7Q Ch. 5 - Prob. 8Q Ch. 5 - Prob. 9Q Ch. 5 - For property, plant, and equipment, as reported on...

Ch. 5 - Briefly explain the major classifications of...Ch. 5 - Prob. 12Q Ch. 5 - Prob. 13Q Ch. 5 - Prob. 14Q Ch. 5 - If average total assets increase, but net income,...Ch. 5 - Prob. 2MCQ Ch. 5 - Prob. 3MCQ Ch. 5 - Prob. 4MCQ Ch. 5 - Prob. 5MCQ Ch. 5 - Prob. 6MCQ Ch. 5 - Prob. 7MCQ Ch. 5 - Prob. 8MCQ Ch. 5 - Prob. 9MCQ Ch. 5 - Prob. 10MCQ Ch. 5 - Prob. 1ME Ch. 5 - Prob. 2ME Ch. 5 - Prob. 3ME Ch. 5 - Prob. 4ME Ch. 5 - Determining Financial Statement Effects of Sales...Ch. 5 - Prob. 6ME Ch. 5 - Prob. 7ME Ch. 5 - Matching Players in the Accounting Communication...Ch. 5 - Prob. 2E Ch. 5 - Finding Financial Information: Matching...Ch. 5 - Prob. 4E Ch. 5 - Preparing a Classified Balance Sheet Campbell Soup...Ch. 5 - Prob. 6E Ch. 5 - Prob. 7E Ch. 5 - Prob. 8E Ch. 5 - Prob. 9E Ch. 5 - Prob. 10E Ch. 5 - Prob. 11E Ch. 5 - Stock Issuances and the Statement of Stockholders...Ch. 5 - Prob. 13E Ch. 5 - Prob. 14E Ch. 5 - Prob. 15E Ch. 5 - Prob. 16E Ch. 5 - Prob. 17E Ch. 5 - Prob. 18E Ch. 5 - Prob. 19E Ch. 5 - Prob. 1P Ch. 5 - Matching Definitions with Balance Sheet-Related...Ch. 5 - Prob. 3P Ch. 5 - Prob. 4P Ch. 5 - Preparing a Classified (Multiple-Step) Income...Ch. 5 - Prob. 6P Ch. 5 - Determining and Interpreting the Effects of...Ch. 5 - Determining the Effects of Transactions on Ratios...Ch. 5 - Prob. 9P Ch. 5 - Prob. 1AP Ch. 5 - Prob. 2AP Ch. 5 - Prob. 3AP Ch. 5 - Prob. 4AP Ch. 5 - Prob. 1CP Ch. 5 - Prob. 2CP Ch. 5 - Prob. 3CP Ch. 5 - Prob. 4CP Ch. 5 - Prob. 5CP Ch. 5 - Prob. 6CP Ch. 5 - Prob. 7CP Ch. 5 - Evaluating the Impact of Transactions on Statement...Ch. 5 - Prob. 2CC

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Analyze the each error and indicate its effect on 2013 and 2014 net income, assets, and liabilities of Company M if not corrected.

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Analyze the each error and indicate its effect on 2013 and 2014 net income, assets, and liabilities of Company M if not corrected.

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