Question

Assume that Sunshine Realty Co. borrowed $300,000 from Columbia First Bank and Trust. In recording the transaction, Sunshine erroneously recorded the receipt as a debit to Cash, $300,000, and a credit to Fees Earned, $300,000. (a) How would this error affect the equality of the trial balance? (b) How would this error affect the income statement, statement of owner's equity, and balance sheet?

Answer 1

Answer:

(a) the error will not affect the equality of the trial balance.

(b) the income statement will show higher earnings.

    the statement of owners equity will show higher balance.

    the balance sheet will show higher balance of ending owners equity and the liability will show lower balance.

Explanation:

(a) both the credit and debit side of the trial balance is recorded, this will dont affect the equality

(b) since the fees earned will be more by $300,000, hence the income statement will have higher earnings.

the balance sheet would show a higher owners equity balance and show a lower liability balance.

the statement of owners equity will have been recorded a higher net income of $300,000.