Below are three independent and unrelated errors.
On December 31, 2020, Wolfe-Bache Corporation failed to accrue salaries expense of $2,150. In January 2021, when it paid employees for the December 27–January 2 workweek, Wolfe-Bache made the following entry:Salaries expense 2,150 Cash 2,150On the last day of 2020, Midwest Importers received a $98,000 prepayment from a tenant for 2021 rent of a building. Midwest recorded the receipt as rent revenue. The error was discovered midway through 2021.At the end of 2020, Dinkins-Lowery Corporation failed to accrue interest of $8,700 on a note receivable. At the beginning of 2021, when the company received the cash, it was recorded as interest revenue.
Required:
For each error:
1. What would be the effect of each error on the income statement and the balance sheet in the 2020 financial statements?
2. Prepare any journal entries each company should record in 2021 to correct the errors.
What would be the effect of each error on the income statement and the balance sheet in the 2020 financial statements

One of the three crucial financial statements used to describe a company's financial performance throughout a certain accounting period is the income statement. The balance sheet and the cash flow statement are the other two important statements. The revenue, costs, profits, and losses incurred by a corporation over a specific time period are the main topics of the income statement. An income statement, also referred to as the profit and loss (P&L) statement or the statement of revenue and expenses, offers important information about a company's operations, the effectiveness of its management, under performing industries, and its performance in comparison to peers in the same industry.

1. Error (a).

Income statement: expense understated - net income overstated

Balance sheet: Liabilities understated - Retained earning overstated

Error (b)

Income statement: Revenue overstated - net income Overstated

Balance sheet: Liabilities understated - Retained earning overstated

Error (c)

Income statement: Revenue understated - net income Understated

Balance sheet: Asset understated Retained - Earning understated

2.

Debit Credit

a. Retained earning A/C Dr. $2150

To Office supplies expense A/C $2150

b. Retained earnings A/C Dr. $98000

To Rent revenue A/C $98000

C. Interest revenue A/C Dr. $8700

To retained earning A/C $8700

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