In May 20X5, the newly appointed controller of Butch Baking Corporation conducted a thorough review of past accounting, particularly of transactions that exceeded the company’s normal level of materiality. As a result of his review, he instructed the company’s chief accountant to correct two errors:
a. In 20X2, the company made extensive improvements to the baking process and installed a substantial amount of new equipment. The entire cost of the process improvements and equipment was accidentally charged to income as restructuring expense in 20X2. However, the equipment should have been capitalized and added to the factory equipment account. The cost of the equipment was $ 1,200,000. Butch depreciates its factory equipment on the straight- line basis over 10 years. A full year’s depreciation is charged in the year that equipment is acquired.
b. A year- end cut- off error occurred in 20X3. A large shipment of nonperishable supplies arrived from China on the last day of 20X3 and had been left in the shipping containers outside the main plant. As a result, the supplies were recorded as received in 20X4 and had not been included in the year- end 20X3 inventory count. The account payable also had not been recorded in 20X3. The supplies cost $ 160,000.
Like most companies, Butch Baking presents a five- year financial summary in its annual report. The 20X4 summary contained the following information (in thousands of dollars, except EPS):


1. Explain the impact of these two errors on the summary financial information.
2. Revise the financial summary.
3. Prepare the journal entry or entries that are necessary in 20X5 to correct the accounts as of 1 January 20X5.

  • CreatedFebruary 17, 2015
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