The following presents Oscar Equipment Company’s draft financial statements for December 2022, with comparative figures for 2021. Amounts are in $000’s. 

During 2022 (2021), the company declared and paid $450,000 ($400,000) of dividends;

Required:

a. Before the above financial statements were finalized and issued, management decided to increase the allowance for doubtful accounts from 2% of gross receivables to 3% to reflect higher credit risk. Identify the effect of this change on the financial statements. Ignore the effect of income taxes. Indicate both the direction and magnitude of any effects.

b. The company discovered an error relating to land it had purchased in 2015. There were $50,000 of costs that should have been expensed but were incorrectly capitalized into the cost of land. Identify the effect of this change on the financial statements. Ignore the effect of income taxes. Indicate both the direction and magnitude of any effects.

c. Identify two substantive errors in the above financial statements.

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Cash Accounts receivable (gross) Less: allowance for doubtful accts Inventories Current assets Land Plant and equipment (net) Goodwill Non-current assets Total assets 2022 $ 280 3,500 (70) 1,330 5,040 800 2,500 320 3,620 $8,660 Balance Sheet as at December 31 2021 $ 350 3,000 (60) 1,230 4,520 800 2,890 320 4,010 $8,530 Accounts payable Taxes payable Long-term debt Wages payable Total liabilities Preferred shares Common shares Retained earnings Total equity Total liabilities and equity 2022 $2,050 100 1,600 300 4,050 600 1,500 2,510 4,610 $8,660 2021 $1,900 100 2,070 240 4,400 1,500 2,630 4,130 $8,530