Krafty Kris, Inc., discovered the following errors after the 2017 financial statements were issued: a. A major

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Krafty Kris, Inc., discovered the following errors after the 2017 financial statements were issued:

a. A major supplier shipped inventory valued at $8,550 to Krafty Kris on consignment. This merchandise was mistakenly included in the inventory taken by Krafty Kris on December 31, 2016. (Goods shipped on consignment are the property of the consignor and should not have been included in Krafty Kris's inventory.)

b. Krafty Kris renewed its liability insurance policy on October 1, 2016, paying a $36,000 premium and debiting Insurance expense. No further entries have been made. The premium purchased insurance coverage for a period of 36 months.

c. Repair expense was debited at the time equipment was purchased for $100,000 on January 1, 2017. The equipment has a life of five years; its salvage value is considered immaterial. Krafty uses straight-line depreciation method.

Required:

1. Prepare a journal entry to correct these errors. Ignore income taxes.

2. If these errors were to remain uncorrected, what would be the effects on the 2018 financial statements issued by Krafty Kris, Inc.?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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Financial Reporting and Analysis

ISBN: 978-1259722653

7th edition

Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer

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