Assume that the error in Exercise 3-15 was not corrected and that the accrued salaries were included in the first salary payment in January

Finance Jan 22, 2021

Assume that the error in Exercise 3-15 was not corrected and that the accrued salaries were included in the first salary payment in January. Indicate which items will be erroneously stated, because of failure to correct the initial error, on
(a) The income statement for the month of January and
(b) The balance sheet
as of January 31.

Expert Solution

a. Salary expense (or expenses) will be overstated. Net income will be under-stated.

b. The balance sheet will be correct. This is because salaries payable has been satisfied, and the net income errors have offset each other. Thus, stockholders’ equity (retained earnings) is correct.

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