17.   Effect of recording errors on the balance sheet equation. Using the notation O/S (overstated), U/S (understated), or No (no effect), indicate the effects on assets, liabilities, and share- holders’ equity of failing to record or recording incorrectly each of the following transac- tions or events. For example, a failure to record the issuance of common stock for $10,000 cash would be shown as follows:

■    Assets—U/S  $10,000

■     Liabilities—No

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

(1)   A firm ordered $23,000 of merchandise from a supplier but did not record anything in its accounts.

(2)   The firm received the merchandise in transaction (1) and recorded it by debiting Mer- chandise Inventory and crediting Accounts Payable for $32,000.

(3)   The firm acquired an automobile costing $20,000 by paying $2,000 in cash and signing a note payable for the remainder of the purchase price. It recorded the acquisition by debiting Automobile for $20,000, crediting Cash for $18,000, and crediting Note Pay- able for $2,000.

(4)   The firm paid the $1,800 annual insurance premium on the automobile in transaction

(3) by debiting Automobile and crediting Cash for $1,800. The insurance period begins next month.

(5)   The firm received an order from a customer for $5,500 of merchandise that the firm will deliver next month. The customer included a check for $1,500. The firm made no entry for this transaction.

(6)   The firm issued 2,000 shares of its $10 par value common stock having a market value of $32,000 in exchange for land. It recorded the transaction by debiting Land and crediting Common Stock for $20,000.

(7)   The firm signed a three-year employment agreement with its chief executive officer at an annual salary of $275,000. The employment period begins next month. The firm did not record anything in its accounts related to this agreement.