Question a) Indicate the effects (both the direction and amount) on each account if the mistake(s) were corrected, using the following notation: increase (+), decrease (-) or no effect (NE). Make sure you write down NE if you think there is no effect. Each transaction is independent (i.e., the first transaction does not affect the second, etc...). For each question be sure to show by what amounts the financial statements would be changed after the corrections are made for the forgotten or mistaken transactions.

Ignore any effect of taxes. Example: A firm neglected to record a payment to a supplier of $10,000 for previously recorded accounts payable. If this mistake was corrected, the effects on the following accounts would be: Current Assets (-) 10,000 Long-term assets NECurrent Liabilities (-) 10,000 Long-term liabilities NECommon Stock NE Retained Earnings NENet Income NE a) The Company paid amounts totaling $122,000 to consultants throughout 2006 for an advertising campaign developed during the year.

It is the Company's policy to expense the costs of all advertisements as of the first date the advertisements take place. The Company launched the campaign on December 29, 2006.

The accountant mistakenly capitalized all advertising costs in its balance sheet. If this mistake is corrected, what would be the correct amounts for the following?

Gross profit ? ____________________

Selling, general and administrative expenses? ____________________

Current assets? ____________________

Retained earnings? ____________________

Cash? ____________________

Question b) The Company reflected total salaries of $28,000 for the last two weeks in December as selling, general and administrative expenses. 70% of the salaries for this period related to workers at the production facility with the remaining 30% covering administrative and sales staff. All of the inventory in production during the last two weeks in December was still in the production line at December 31, 2006. If the salaries costs had been properly recorded, what would be correct amounts for the following line items?

Current assets? ____________________

WIP inventory? ____________________

Cost of goods sold? ____________________

Net income? ____________________

Total shareholders' equity? ____________________

Question c) The Company neglected to record sales commissions earned by sales staff during the fourth quarter of the current year (i.e., October-December). The company's sales commission agreements call for a commission of 3% of the gross profit on each sale to be paid to sales staff on the first day of the quarter following the quarter in which the sale occurs. Sales totaled $640,000 and cost of sales totaled $336,000 for the fourth quarter. Sales revenues and cost of sales were properly recorded. If the company had properly reflected this activity during 2006, what would be the correct amounts for the following items?

Selling, general and administrative expenses? ____________________

Total shareholders equity? ____________________

Current liabilities? ____________________

Retained Earnings? ____________________