Question

You are told the column totals in a trial balance are not equal. After careful analysis, you discover only one error. Specifically, a correctly journalized credit purchase of an automobile for \(18,950 is posted from the journal to the ledger with an \)18,950 debit to Automobiles and another \(18,950 debit to Accounts Payable. The Automobiles account has a debit balance of \)37,100 on the trial balance. (1) Answer each of the following questions and (2) compute the dollar amount of any misstatement for parts athrough d.

a. Is the Debit column total of the trial balance overstated, understated, or correctly stated?

b. Is the Credit column total of the trial balance overstated, understated, or correctly stated?

c. Is the Automobiles account balance overstated, understated, or correctly stated in the trial balance?

d. Is the Accounts Payable account balance overstated, understated, or correctly stated in the trial balance?

e. If the Debit column total of the trial balance is $200,000 before correcting the error, what is the total of the Credit column before correction?

Short answer

a. Correctly stated

b. Understated by $37,900

c. Correctly stated

d. Understated by $37,900

e. $162,100 credit balance before error correction

Step-by-step solution

Step-by-Step-SolutionStep 1: Statement a

The debit column of the trial balance is correctly stated as the Automobile balance has been posted correctly, and Automobiles are an asset that would generally have a debit balance.

Statement b

The credit column of the trial balance is understated. This is due to the accounts payable being posted on the wrong side.

The credit side of the trial balance is understated by $37,900. The understated amount is calculated as follows:

$\begin{array}{rcl}\mathbf{UnderstatedCreditColumn}& \mathbf{=}& \mathbf{Wrongsidepostedamount}\mathbf{+}\mathbf{Amounttobepostedontherightside}\\ & \mathbf{=}& \mathbf{\$}\mathbf{18}\mathbf{,}\mathbf{950}\mathbf{+}\mathbf{\$}\mathbf{18}\mathbf{,}\mathbf{950}\\ & \mathbf{=}& \mathbf{\$}\mathbf{37}\mathbf{,}\mathbf{900}\mathbf{.}\end{array}$

Statement c

The Automobile account balance has been stated correctly in the trial balance because the amount has been posted correctly from the journal to the ledger in the automobile account balance.

Statement d

The Accounts payable balance has been understated in the trial balance. This is due to the ledger being posted on the wrong side.

The Accounts payable has been understated by $37,900. The understated amount is calculated as follows:

$\begin{array}{rcl}\mathbf{UnderstatedCreditColumn}& \mathbf{=}& \mathbf{Wrongsidepostedamount}\mathbf{+}\mathbf{Amounttobepostedontherightside}\\ & \mathbf{=}& \mathbf{\$}\mathbf{18}\mathbf{,}\mathbf{950}\mathbf{+}\mathbf{\$}\mathbf{18}\mathbf{,}\mathbf{950}\\ & \mathbf{=}& \mathbf{\$}\mathbf{37}\mathbf{,}\mathbf{900}\mathbf{.}\end{array}$

Statement e

As the credit side of the trial has been understated by $37,900, the total credit balance of the trial balance before the error-correction would be:

$\begin{array}{rcl}\mathbf{Creditbalancebeforeerrorcorrection}& \mathbf{=}& \mathbf{Debitbalanceoftrialbalance}\mathbf{-}\mathbf{Understatedamount}\\ & \mathbf{=}& \mathbf{\$}\mathbf{200}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{37}\mathbf{,}\mathbf{900}\\ & \mathbf{=}& \mathbf{\$}\mathbf{162}\mathbf{,}\mathbf{100}\mathbf{.}\end{array}$