Answer:
1. The purchase of equipment for cash is recorded as a debit to Equipment and a credit to Accounts Payable.
Net income: N
Total assets: O (when equipment is purchased for cash, cash decreases and equipment increases in the same amount, so the net effect on assets is $0, but if accounts payable is credited, then cash will be overstated)
Total liabilities: O
Total shareholders' equity: N
2. Failed to record the purchase of inventory on credit.
Net income: O (since cost of goods sold will be understated)
Total assets: U (inventory)
Total liabilities: U (accounts payable)
Total shareholders' equity: O (since net income is overstated, retained earnings will be overstated also)
cost of goods sold = purchases - inventory, even if the company uses a perpetual inventory system, not recording the purchase of inventory will result in an understatement of COGS.
3. Cash received from a customer in payment of its account is recorded as if the receipt were for a current period sale.
Net income: O (revenues are recognized when they occur, not when the cash is collected)
Total assets: N
Total liabilities: N
Total shareholders' equity: O (since net income is overstated, retained earnings will be overstated)
4. Failed to record a credit sale.
Net income: U (when you fail to record a sale, net income is understated)
Total assets: U (assuming that the sales price was higher than the cost of goods sold, then accounts receivable should have increased more than inventory's decrease)
Total liabilities: N
Total shareholders' equity: U (since net income is understated, retained earnings will be understated)
5. At the end of the year, the receipt of money from a 60-day, 12% bank loan is recorded as a debit to Cash and a credit to Sales Revenue.
Net income: O (since sales revenue increased by mistake, net income will be overstated)
Total assets: N
Total liabilities: U (a bank loan is a liability)
Total shareholders' equity: O (since net income is overstated, retained earnings will be overstated)
6. Failed to record depreciation at the end of the current period.
Net income: O (depreciation is an expense account and not recording it will overstate net income)
Total assets: O (the net carrying value of the fixed assets will be overstated)
Total liabilities: N
Total shareholders' equity: O (since net income is overstated, retained earnings will be overstated)
