Question

June 1, 2011, Sterling signs a one-year, 8% note payable for $10,000 with principle and interest due on June 1, 2012. It is Sterling's only note outstanding. On June 1, 2012 when the note is paid, Sterling debits Notes Payable and credits Cash 10,800, the sum of principle and interest.

The error is likely to be found because...

a. the bank reconciliation will be out of balance when the check clears

b. the trial balance will be out of balance by $800

c. the trial balance will show a balance in notes payable that is not normal

d. interest expense will be understated

At year end, a physical count of office supplies reveals that $7,000 of supplies were used up, but no adjusting entry was made. If error is found, it is most likely because...

a. the trial balance would be out of balance by $14,000

b. the trial balance balance would be out of balance by $3,5000.

c. none of the above

Explanation please and please answer only if you are sure of the answer. This question is posted on Chegg from other people and the answers are different. I would like to know the reasoning behind it.

Answer 1

1. In case of Sterling the answer is c. the trial balance will show a balance in notes payable that is not normal. The reason for selecting this answer is that, when the notes payable is $ 10000 and amount paid is $ 10800, then notes payable will show a debit balance of $ 800 which is not normal for a payable account (payables are credit balances. The assumption here is that the interest due/accrued entry have not been passed on the due/accrued date.

2.In case of office supplies, the answer is c. None of the above. Because of non passing of adjusting entry, trial balnce will not become out of balance by any amount. The non passing of adjusting entry have the effect of overstating of stock of office supplies and consequenty profit will be over stated by that amount