In the course of routine checking of all journal entries prior to preparing year-end reports, Betty Eller discovered several strange entries. She recalled that the president”s son Joe had come in to help out during an especially busy time and that he had recorded some journal entries. She was relieved that there were only a few of his entries, and even more relieved that he had included rather lengthy explanations. The entries Joe made were:

Costs

Quarter

1

2

3

4

Direct materials

$100,000

$220,000

$ 80,000

$200,000

Direct labor

60,000

132,000

48,000

120,000

Manufacturing overhead

105,000

153,000

97,000

125,000

Total

$265,000

$505,000

$225,000

$445,000

Production in batches

5

11

4

10

Unit cost (per batch)

$ 53,000

$ 45,909

$ 56,250

$ 44,500

(This is for materials put into process. I don”t find the record that we paid for these, so I”m crediting Cash because I know we”ll have to pay for them sooner or later.)

Work in Process Inventory

25,000

Cash

25,000

(This is for bonuses paid to salespeople. I know they”re part of overhead, and I can”t find an account called “Non-Factory Overhead” or “Other Overhead” so I”m putting it in Manufacturing Overhead. I have the check stubs, so I know we paid these.)

Manufacturing Overhead

12,000

Cash

12,000

(This is for the factory workers’ wages. I have a note that payroll taxes are $18,000. I still think that”s part of wages expense and that we”ll have to pay it all in cash sooner or later, so I credited Cash for the wages and the taxes.)

Wages Expense

120,000

Cash

120,000

(This is for the glue used in the factory. I know we used this to make the products, even though we didn”t use very much on any one of the products. I got it out of inventory, so I credited an inventory account.)

Instructions

(a)How should Joe have recorded each of the four events?

(b)If the entry was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated?