28.   Effect of recording errors on the balance sheet equation. Siderúrgica Venezolana “Sivensa,” S.A., is a Venezuelan steel and metalworking company. Assume that during a recent year, Sivensa recorded various transactions with the following journal entries. The company applies IFRS and reports its results in thousands of U.S. dollars. Using the notation O/S (overstated), U/S (understated), or No (no effect), indicate the effects on assets, liabilities, and shareholders’ equity of any errors in Sivensa’s recording of each of these transactions. For example, if Sivensa recorded the issue of $10,000 of common stock by debiting Cash and crediting Bonds Payable, the effects of the error are as follows:

 

 

■     Assets—No.

■     Liabilities—O/S $10,000.

■     Shareholders’ equity—U/S $10,000.

 

(1)    Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .                     10,000

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                         2,000

Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                         8,000

 

Assets	=	Liabilities	+	Shareholders’ Equity	(Class.)
+10,000
–2,000
–8,000

Sivensa acquired equipment costing $10,000 by paying $2,000 cash and signing a note payable for $8,000. It debited Equipment, credited Cash for

$2,000, and credited Accounts Receivable for $8,000.

 

 

(2)    Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .                      4,000

Note Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                         4,000

 

Assets	=	Liabilities	+	Shareholders’ Equity	(Class.)
+4,000		+4,000

Sivensa placed an order for equipment valued at $4,000 that it will receive next month. Sivensa made a $1,000 deposit when it made the order and promised to pay the rest on delivery of the equipment. Sivensa debited Equipment for $4,000 and credited Notes Payable for $4,000.

(3)   Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                           800

Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                            800

 

Assets	=	Liabilities	+	Shareholders’ Equity	(Class.)
+800
–800

Sivensa received $800 as a deposit from a customer and debited Cash and credited Accounts Receivable for $800. The customer did not owe Sivensa any amounts at the time of this transaction.

 

 

(4)    Prepaid Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        1,000

Rent Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                         1,000

 

Assets	=	Liabilities	+	Shareholders’ Equity	(Class.)
+1,000		+1,000

Sivensa signed a rental agreement for warehouse space for a one-year period beginning next month. The monthly rental fee of $1,000 is due on the first day of each month. Sivensa debited Prepaid Rent and credited Rent Payable for $1,000.

 

 

(5) Sivensa exchanged common stock with a market value of $2,500 for a patent and made no journal entry to record the exchange.

 

 

 

 

 

(6)    Merchandise Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                       4,900

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                         4,900

 

Assets	=	Liabilities	+	Shareholders’ Equity	(Class.)
+4,900
–4,900

Sivensa acquired $4,900 of office equipment for cash. It debited Inventory for $4,900 and credited Cash for $4,900.