Problem:
In the course of routine checking of all journal entries prior to preparing year end reports, Diane Riser discovered several strange entries. She recalled that the president's son Ron had come in to help out during and especially busy time and that he had recorded some journal entries. She was relieved that there was only a few of his entries, and even more relieved that he had included rather lengthy explanations. The entry Ron made was:
Manufacturing overhead $12,000
Cash $12,000
(This is for bonuses paid to sales people. I know they're part of overhead and I can't find an account called "Non-factory Overhead" or "Other Overhead" so I am putting it in Manufacturing Overhead. I have the check stubs, so I know we paid these.)
(A): How should Ron have recorded this event?
(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?