Below are three independent and unrelated errors.
a. On December 31, 2010, Wolfe-Bache Corporation failed to accrue office supplies expense of $1,800. In January 2011, when it received the bill from its supplier, Wolfe-Bache made the following entry:
b. On the last day of 2010, Midwest Importers received a $90,000 prepayment from a tenant for 2011 rent of a building. Midwest recorded the receipt as rent revenue.
c. At the end of 2010, Dinkins-Lowery Corporation failed to accrue interest of $8,000 on a note receivable. At the beginning of 2011, 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 2010 financial statements?
2. Prepare any journal entries each company should record in 2011 to correct the errors.