Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranching's trial balance on December 31, 20X3, in Australian dollars is as follows:$

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{A\$\hspace{5pt}44,100}\\ \text{Accounts Receivable (net)} &72,000\\ \text{Inventory} & 86,000\\ \text{Plant \& Equipment} & 240,000\\ \text{Accumulated Depreciation} && \text{A\$\hspace{5pt}60,000}\\ \text{Accounts Payable} && 53,800\\ \text{Payable to Palermo Inc.} && 10,800\\ \text{Interest Payable} &&3,000\\ \text{12\\\% Bonds Payable} &&100,000\\ \text{Premium on Bonds} &&5,700\\ \text{Common Stock} && 90,000\\ \text{Retained Earnings} &&40,000\\ \text{Sales} && 579,000\\ \text{Cost of Goods Sold} &330,000\\ \text{Depreciation Expense} & 24,000\\ \text{Operating Expenses} & 131,500\\ \text{Interest Expense} & 5,700\\ \text{Dividends Paid} &9,000\\ \hline \text{Total} & \underline{\underline{\text{A\$942,300}}} & \underline{\underline{\text{A\$942,300}}}\\ \end{array}$$

$$**Additional Information** 1. Salina Ranching uses average cost for cost of goods sold. Inventory increased by A\$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year. 2. Plant and equipment were acquired as follows:$$

$$\begin{array}{lr} \textbf{Date} & \textbf{ Cost } \\ \\ \text{January 20X1} & \text{A\$180,000} \\ \text{January 1, 20X3} & 60,000 \\ \end{array}$$

$3. Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.

4. The payable to Palermo is in Australian dollars. Palermo's books show a receivable from Salina Ranching of$6,480.

5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.

6. The dividends were declared and paid on April 1.

7. Exchange rates were as follows:

$$\begin{array}{lr} & \textbf{A\$ \hspace{10pt} \$} \\ \text{January 20X1} & 1 = 0.93\\ \text{August 20X1} & 1 = 0.88\\ \text{January 1, 20X3} & 1 = 0.70\\ \text{April 1, 20X3} & 1 = 0.67\\ \text{July 1, 20X3} & 1 = 0.64\\ \text{December 31, 20X3} & 1 = 0.60\\ \text{20X3 average} & 1 = 0.65\\ \end{array}$$

Assume that the Australian dollar (AS) is the functional currency and that Palermo uses the fully adjusted equity method for accounting for its investment in Salina Ranching. A December 31, 20X3, trial balance for Palermo Inc. follows. Use this translated trial balance for completing this problem.

$$\begin{array}{lrr} \textbf{Item} & \textbf{Debit} & \textbf{Credit}\\ \\ \text{Cash} & \$\hspace{10pt}38,000\\ \text{Accounts Receivable (net)} & 140,000\\ \text{Receivable from Salina Ranching} & 6,480\\ \text{Inventory} & 128,000\\ \text{Plant \& Equipment} &500,000\\ \text{Investment in Salina Ranching} & 152,064\\ \text{Cost of Goods Sold} & 600,000\\ \text{Depreciation Expense} & 28,000\\ \text{Operating Expenses} & 204,000\\ \text{Interest Expense} & 2,000\\ \text{Dividends Declared} & 50,000\\ \text{Translation Adjustment} & 22,528\\ \text{Accumulated Depreciation} && \$\hspace{10pt}90,000\\ \text{Accounts Payable} && 60,000\\ \text{Interest Payable} && 2,000\\ \text{Common Stock} &&500,000\\ \text{Retained Earnings, January 1, 20X3} &&179,656\\ \text{Sales} && 1,000,000\\ \text{Income from Subsidiary} &&39,416\\ \hline \text{Total} & \underline{\underline{\$1,871,072}} & \underline{\underline{\$1,871,072}}\\ \end{array}$$

Required

Prepare a comprehensive consolidation worksheet as of December 31, 20X3.

Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranching's trial balance on December 31, 20X3, in Australian dollars is as follows:$

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{A\$\hspace{5pt}44,100}\\ \text{Accounts Receivable (net)} &72,000\\ \text{Inventory} & 86,000\\ \text{Plant \& Equipment} & 240,000\\ \text{Accumulated Depreciation} && \text{A\$\hspace{5pt}60,000}\\ \text{Accounts Payable} && 53,800\\ \text{Payable to Palermo Inc.} && 10,800\\ \text{Interest Payable} &&3,000\\ \text{12\\\% Bonds Payable} &&100,000\\ \text{Premium on Bonds} &&5,700\\ \text{Common Stock} && 90,000\\ \text{Retained Earnings} &&40,000\\ \text{Sales} && 579,000\\ \text{Cost of Goods Sold} &330,000\\ \text{Depreciation Expense} & 24,000\\ \text{Operating Expenses} & 131,500\\ \text{Interest Expense} & 5,700\\ \text{Dividends Paid} &9,000\\ \hline \text{Total} & \underline{\underline{\text{A\$942,300}}} & \underline{\underline{\text{A\$942,300}}}\\ \end{array}$$

$$**Additional Information** 1. Salina Ranching uses average cost for cost of goods sold. Inventory increased by A\$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year. 2. Plant and equipment were acquired as follows:$$

$$\begin{array}{lr} \textbf{Date} & \textbf{ Cost } \\ \\ \text{January 20X1} & \text{A\$180,000} \\ \text{January 1, 20X3} & 60,000 \\ \end{array}$$

$3. Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.

4. The payable to Palermo is in Australian dollars. Palermo's books show a receivable from Salina Ranching of$6,480.

5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.

6. The dividends were declared and paid on April 1.

7. Exchange rates were as follows:

$$\begin{array}{lr} & \textbf{A\$ \hspace{10pt} \$} \\ \text{January 20X1} & 1 = 0.93\\ \text{August 20X1} & 1 = 0.88\\ \text{January 1, 20X3} & 1 = 0.70\\ \text{April 1, 20X3} & 1 = 0.67\\ \text{July 1, 20X3} & 1 = 0.64\\ \text{December 31, 20X3} & 1 = 0.60\\ \text{20X3 average} & 1 = 0.65\\ \end{array}$$

Required

Assume that the Australian dollar (AS) is the functional currency and that Palermo uses the fully adjusted equity method for accounting for its investment in Salina Ranching.

Provide the necessary documentation and support for the amounts recorded in the journal entries, including a schedule of the translation adjustment related to the differential.

Something that is likely to alienate teammates a. shaking hands b. hogging the ball c. working hard d. eating pizza

Greavy Theater Production Company's partially completed worksheet as of December 31, 2018, follows.

Adjustment data at December 31 follow:

• a. As of December 31, Greavy had performed $500 of service revenue but has not yet billed customers.
• b. At the end of the month, Greavy had$700 of office supplies remaining.
• c. Prepaid Insurance of $3,900 remained.
• d. Depreciation expense,$4,000.
• e. Accrued salaries expense of $200 that hasn't been paid yet.

Requirements

1. Complete the worksheet. Use letters a through e to label the five adjustments.
2. Journalize the adjusting entries.

Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranching's trial balance on December 31, 20X3, in Australian dollars is as follows:$

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{A\$\hspace{5pt}44,100}\\ \text{Accounts Receivable (net)} &72,000\\ \text{Inventory} & 86,000\\ \text{Plant \& Equipment} & 240,000\\ \text{Accumulated Depreciation} && \text{A\$\hspace{5pt}60,000}\\ \text{Accounts Payable} && 53,800\\ \text{Payable to Palermo Inc.} && 10,800\\ \text{Interest Payable} &&3,000\\ \text{12\\\% Bonds Payable} &&100,000\\ \text{Premium on Bonds} &&5,700\\ \text{Common Stock} && 90,000\\ \text{Retained Earnings} &&40,000\\ \text{Sales} && 579,000\\ \text{Cost of Goods Sold} &330,000\\ \text{Depreciation Expense} & 24,000\\ \text{Operating Expenses} & 131,500\\ \text{Interest Expense} & 5,700\\ \text{Dividends Paid} &9,000\\ \hline \text{Total} & \underline{\underline{\text{A\$942,300}}} & \underline{\underline{\text{A\$942,300}}}\\ \end{array}$$

$$**Additional Information** 1. Salina Ranching uses average cost for cost of goods sold. Inventory increased by A\$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year. 2. Plant and equipment were acquired as follows:$$

$$\begin{array}{lr} \textbf{Date} & \textbf{ Cost } \\ \\ \text{January 20X1} & \text{A\$180,000} \\ \text{January 1, 20X3} & 60,000 \\ \end{array}$$

$3. Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.

4. The payable to Palermo is in Australian dollars. Palermo's books show a receivable from Salina Ranching of$6,480.

5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.

6. The dividends were declared and paid on April 1.

7. Exchange rates were as follows:

$$\begin{array}{lr} & \textbf{A\$ \hspace{10pt} \$} \\ \text{January 20X1} & 1 = 0.93\\ \text{August 20X1} & 1 = 0.88\\ \text{January 1, 20X3} & 1 = 0.70\\ \text{April 1, 20X3} & 1 = 0.67\\ \text{July 1, 20X3} & 1 = 0.64\\ \text{December 31, 20X3} & 1 = 0.60\\ \text{20X3 average} & 1 = 0.65\\ \end{array}$$

Required

Assume that the Australian dollar (AS) is the functional currency and that Palermo uses the fully adjusted equity method for accounting for its investment in Salina Ranching.

Prepare the entries that Palermo would record in 20X3 for its investment in Salina Ranching. Your entries should include the following:

$\quad\quad$ (1) Record the initial investment on January 1, 20X3.

$\quad\quad$ (2) Record the dividend received by the parent company.

$\quad\quad$ (3) Recognize the parent company's share of the equity income of the subsidiary.

$\quad\quad$ (4) Record the amortizations of the differential.

$\quad\quad$ (5) Recognize the translation adjustment required by the parent from the adjustment of the differential.

$\quad\quad$ (6) Recognize the parent company's share of the translation adjustment resulting from the translation of the subsidiary's accounts.

Galaxy Theater Production Company's partially completed worksheet as of December 31, 2018, follows.

Adjustment data at December 31 follow:

• a. As of December 31, Galaxy had performed $900 of service revenue but has not yet billed customers.
• b. At the end of the month, Galaxy had$500 of office supplies remaining.
• c. Prepaid Insurance of $600 remained.
• d. Depreciation expense,$4,200.
• e. Accrued salaries expense of $150 that hasn't been paid yet.

Requirements

1. Complete the worksheet. Use letters a through e to label the five adjustments.
2. Journalize the adjusting entries.

Just Right Hair Stylists has begun the preparation of its worksheet as follows:

Year-end data include the following:

• a. Office supplies on han4 $300.
• b. Depreciation,$700.
• c. Accrued interest expense, $800.

Complete Just Right's worksheet through the adjusted trial balance section. In the adjustments section, mark each adjustment by letter.

Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranching's trial balance on December 31, 20X3, in Australian dollars is as follows:$

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{A\$\hspace{5pt}44,100}\\ \text{Accounts Receivable (net)} &72,000\\ \text{Inventory} & 86,000\\ \text{Plant \& Equipment} & 240,000\\ \text{Accumulated Depreciation} && \text{A\$\hspace{5pt}60,000}\\ \text{Accounts Payable} && 53,800\\ \text{Payable to Palermo Inc.} && 10,800\\ \text{Interest Payable} &&3,000\\ \text{12\\\% Bonds Payable} &&100,000\\ \text{Premium on Bonds} &&5,700\\ \text{Common Stock} && 90,000\\ \text{Retained Earnings} &&40,000\\ \text{Sales} && 579,000\\ \text{Cost of Goods Sold} &330,000\\ \text{Depreciation Expense} & 24,000\\ \text{Operating Expenses} & 131,500\\ \text{Interest Expense} & 5,700\\ \text{Dividends Paid} &9,000\\ \hline \text{Total} & \underline{\underline{\text{A\$942,300}}} & \underline{\underline{\text{A\$942,300}}}\\ \end{array}$$

$$**Additional Information** 1. Salina Ranching uses average cost for cost of goods sold. Inventory increased by A\$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year. 2. Plant and equipment were acquired as follows:$$

$$\begin{array}{lr} \textbf{Date} & \textbf{ Cost } \\ \\ \text{January 20X1} & \text{A\$180,000} \\ \text{January 1, 20X3} & 60,000 \\ \end{array}$$

$3. Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.

4. The payable to Palermo is in Australian dollars. Palermo's books show a receivable from Salina Ranching of$6,480.

5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.

6. The dividends were declared and paid on April 1.

7. Exchange rates were as follows:

$$\begin{array}{lr} & \textbf{A\$ \hspace{10pt} \$} \\ \text{January 20X1} & 1 = 0.93\\ \text{August 20X1} & 1 = 0.88\\ \text{January 1, 20X3} & 1 = 0.70\\ \text{April 1, 20X3} & 1 = 0.67\\ \text{July 1, 20X3} & 1 = 0.64\\ \text{December 31, 20X3} & 1 = 0.60\\ \text{20X3 average} & 1 = 0.65\\ \end{array}$$

Required

Assume that the U.S. dollar is the functional currency and that Palermo uses the fully adjusted equity method for accounting for its investment in Salina Ranching.

Provide the necessary documentation and support for the amounts recorded in the journal entries for the following transactions:

$\quad\quad$ (1) Record the initial investment on January 1, 20X3.

$\quad\quad$ (2) Record the dividend the parent company received.

$\quad\quad$ (3) Recognize the parent company's share of the equity income from the subsidiary.

$\quad\quad$ (4) Record the amortizations of the differential.

Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranching's trial balance on December 31, 20X3, in Australian dollars is as follows:$

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{A\$\hspace{5pt}44,100}\\ \text{Accounts Receivable (net)} &72,000\\ \text{Inventory} & 86,000\\ \text{Plant \& Equipment} & 240,000\\ \text{Accumulated Depreciation} && \text{A\$\hspace{5pt}60,000}\\ \text{Accounts Payable} && 53,800\\ \text{Payable to Palermo Inc.} && 10,800\\ \text{Interest Payable} &&3,000\\ \text{12\\\% Bonds Payable} &&100,000\\ \text{Premium on Bonds} &&5,700\\ \text{Common Stock} && 90,000\\ \text{Retained Earnings} &&40,000\\ \text{Sales} && 579,000\\ \text{Cost of Goods Sold} &330,000\\ \text{Depreciation Expense} & 24,000\\ \text{Operating Expenses} & 131,500\\ \text{Interest Expense} & 5,700\\ \text{Dividends Paid} &9,000\\ \hline \text{Total} & \underline{\underline{\text{A\$942,300}}} & \underline{\underline{\text{A\$942,300}}}\\ \end{array}$$

$$**Additional Information** 1. Salina Ranching uses average cost for cost of goods sold. Inventory increased by A\$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year. 2. Plant and equipment were acquired as follows:$$

$$\begin{array}{lr} \textbf{Date} & \textbf{ Cost } \\ \\ \text{January 20X1} & \text{A\$180,000} \\ \text{January 1, 20X3} & 60,000 \\ \end{array}$$

$3. Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.

4. The payable to Palermo is in Australian dollars. Palermo's books show a receivable from Salina Ranching of$6,480.

5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.

6. The dividends were declared and paid on April 1.

7. Exchange rates were as follows:

$$\begin{array}{lr} & \textbf{A\$ \hspace{10pt} \$} \\ \text{January 20X1} & 1 = 0.93\\ \text{August 20X1} & 1 = 0.88\\ \text{January 1, 20X3} & 1 = 0.70\\ \text{April 1, 20X3} & 1 = 0.67\\ \text{July 1, 20X3} & 1 = 0.64\\ \text{December 31, 20X3} & 1 = 0.60\\ \text{20X3 average} & 1 = 0.65\\ \end{array}$$

Required

Assume the U.S. dollar is the functional currency. Prepare a schedule remeasuring the December 31, 20X3, trial balance of Salina Ranching from Australian dollars to U.S. dollars.

Protection Home provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Protection Home has collected $900 from cash-paying customers. Protection Home's remaining customers owe the business$1,300. How much service revenue would Protection Home have for the year under the

• a. cash basis?
• b. accrual basis?

Easton Company acquires 100% of the outstanding voting shares of Harris Company on January 1, 2019. To obtain these shares, Easton pays $210,000 in cash and issues 5,000 of its$10 par value common stock. On this date, Easton's stock has a fair value of $36 per share, and Harris's book value of stockholders' equity is$280,000. Easton is willing to pay $390,000 for a company with a book value for equity of$280,000 because it believes that (1) Harris buildings are undervalued by $40,000, and (2) Harris has an unrecorded patent that Easton values at$30,000. Easton considers the remaining balance sheet items to be fairly valued (no book-to-fair value difference). The remaining $40,000 of the purchase price excess over book value is ascribed to corporate synergies and other general unidentifiable intangible assets (goodwill). The January 1, 2019, balance sheets at the acquisition date follow:

$$\begin{array}{lrrcc} &\text{ Easton }& \text{ Harris }& \text{Consolidating } & \text{Consolidated}\\ & \text{ Company } & \text{ Company } & \text{ Adjustments }\\ \text{ Cash }& \$\hspace{13pt}84,000 & \$\hspace{13pt}40,000 \\ \text{ Receivables }& 160,000 & 90,000 \\ \text{ Inventory }& 220,000 & 130,000 \\ \text{ Investment in Harris }& 390,000 & - \\ \text{ Land }& 100,000 & 60,000 \\ \text{ Buildings, net }& 400,000 & 110,000 \\ \text{ Equipment, net }& \underline{120,000} & \underline{50,000} \\ \text{ Total assets }& \underline{\underline{\$1 ,474,000}} & \underline{\underline{\$\hspace{8pt}480,000}} \\ \text{ Accounts payable }& \$\hspace{9pt} 160,000 & \$ \hspace{13pt}30,000 \\ \text{ Long-term liabilities }& 380,000 & 170,000 \\ \text{ Common stock }& 500,000 & 40,000 \\ \text{ Additional paid-in capital }& 74,000 & - \\ \text{ Retained earnings }& \underline{\underline{360,000}} & \underline{\underline{240,000}} \\ \text{ Total liabilities \& equity }& \underline{\underline{\$1,474,000}} & \underline{\underline{\$\hspace{8pt}480,000}} \\ \end{array}$$

How will the excess of the purchase price over book value acquired be treated in years subsequent to the acquisition?

Ben Sisko Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment.

$$\begin{array}{lrr} \text{Abstract company's fee for title search}&&\$\hspace{15pt}\text{520}\\ \text{Architect's fees}&&\text{3,170}\\ \text{Cash paid for land and dilapidated building thereon }&&\text{87,000}\\ \text{Removal of old building}&\$\hspace{5pt}\text{20,000}\\ \hspace{10pt}\text{Less: Salvage}&\underline{\hspace{14pt}\text{5,500}}&\text{14,500}\\ \text{Interest on short-term loans during construction }&&\text{7,400}\\ \text{Excavation before construction for basement}&&\text{19,000}\\ \text{Machinery purchased (subject to 2\\\% cash discount, which was not taken)}&&\text{55,000}\\ \text{Freight on machinery purchased}&&\text{1,340}\\ \text{Storage charges on machinery, necessitated by noncompletion of}\\ \hspace{10pt}\text{building when machinery was delivered}&&\text{2,180}\\ \text{New building constructed (building construction took 6 months from}\\ \hspace{10pt}\text{date of purchase of land and old building) }&&\text{485,000}\\ \text{Assessment by city for drainage project}&&\text{1,600}\\ \text{Hauling charges for delivery of machinery from storage to new building}&&\text{620}\\ \text{Installation of machinery}&&\text{2,000}\\ \text{Trees, shrubs, and other landscaping after completion of building}\\ \hspace{10pt}\text{(permanent in nature)}&&\text{5,400}\\ \end{array}$$

Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment. Assume the benefits of capitalizing interest during construction exceed the cost of implementation. Indicate how any costs not debited to these accounts should be recorded.

In recording adjusting entries, Reagan Financial Advisors failed to record the adjusting entries for the following situations: a. Office supplies on hand, $100. b. Accrued revenues,$ 5,000. c. Accrued interest expense, $250. d. Depreciation,$ 800. e. Unearned revenue that has been earned, $ 550.

Determine the effects on the income statement and balance sheet by identifying whether assets, liabilities, equity, revenue, and expenses are either overstated or understated.

In recording adjusting entries, Reagan Financial Advisors failed to record the adjusting entries for the following situations:

• a. Office supplies on hand, $100.
• b. Accrued revenues,$5,000.
• c. Accrued interest expense, $250.
• d. Depreciation,$800.
• e. Unearned revenue that has been earned, $550.

Determine the effects on the income statement and balance sheet by identifying whether assets, liabilities, equity, revenue, and expenses are either overstated or understated. Use the following table. Adjustment a has been provided as an example.