Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 3 Accrual Accounting Concepts 133

The balances of the two wages accounts at December 31, after adjustments at the end of the first

year of operations, are Wages Payable, $5,750, and Wages Expense, $133,400. Determine the

amount of wages paid during the year.

Accrued salaries of $2,180 owed to employees for December 30 and 31 are not considered in

preparing the financial statements for the year ended December 31, 2006. Indicate which items

will be erroneously stated, because of the error, on (a) the income statement for December 2006

and (b) the balance sheet as of December 31, 2006. Also indicate whether the items in error will

be overstated or understated.

Assume that the error in Exercise 3-15 was not corrected and that the $2,180 of accrued salaries

was included in the first salary payment in January 2007. Indicate which items will be erro-

neously stated, because of failure to correct the initial error, on (a) the income statement for

January 2007 and (b) the balance sheet as of January 31, 2007.

For a recent period, Circuit City Storesreported accrued expenses of $202,675 thousand. For the

same period, Circuit City reported a loss before income taxes of $1,240 thousand. If accrued ex-

penses had not been recorded, what would have been the income (loss) before income taxes?

The balance sheet for Ford Motor Companyas of December 31, 2004, includes $31,187 million

of accrued expenses as liabilities. Before taxes, Ford Motor Company reported a net income

of $4,853 million. If the accruals had not been recorded at December 31, 2004, how much

would net income or net loss before taxes have been for the year ended December 31, 2004?

The accountant for Glacier Medical Co., a medical services consulting firm, mistakenly omitted ad-

justing entries for (a) unearned revenue earned during the year ($6,900) and (b) accrued wages

($3,740). (a) Indicate the effect of each error, considered individually, on the income statement for

the current year ended December 31. Also indicate the effect of each error on the December 31 bal-

ance sheet. Set up a table similar to the following, and record your answers by inserting the dol-

lar amount in the appropriate spaces. Insert a zero if the error does not affect the item.

Error (a) Error (b)

Over- Under- Over- Under-

stated stated stated stated

1. Revenue for the year would be $ $ $ $


2. Expenses for the year would be $ $ $ $


3. Net income for the year would be $ $ $ $


4. Assets at December 31 would be $ $ $ $


5. Liabilities at December 31 would be $ $ $ $


6. Stockholders’ equity at December 31 would be $ $ $ $

(b) If the net income for the current year had been $172,680, what would be the correct net in-

come if the proper adjustments had been made?

Exercise 3-19

Effects of errors on financial
statements

Goal 3

b. $175,840

Exercise 3-14

Determine wages paid

Goal 3

Exercise 3-15

Effect of omitting adjustment

Goal 3

Exercise 3-16

Effect of omitting adjustment

Goal 3

Exercise 3-17

Effects of errors on financial
statements

Goal 3

Exercise 3-18

Effects of errors on financial
statements

Goal 3