Fiona Company began operations on January 1, Year 1. The company has drafted its Year 5...
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Fiona Company began operations on January 1, Year 1. The company has drafted its Year 5 comparative financial statements. Adjusting Journal Entries have been recorded; the Year 5 books are still open. Fiona will be audited for the first time. Auditors have discovered the following possible errors: Fiona purchased a machine on June 30, Year 2, paying $30,000 cash. The machine has a salvage value of $5,000 and a useful life of 5 years. The bookkeeper recorded straight-line depreciation for each year through Year 5, but failed to consider the salvage value. а. b. The physical inventory count on December 31, Year 4, improperly excluded merchandise costing $5,000 that had been temporarily stored in a public warehouse. Fiona uses a periodic inventory system. An $18,000 insurance premium was paid on October 1, Year 4, for a policy that expires on September 30, Year 7. The premium was charged to Insurance Expense when paid. No adjustments have been recorded since the payment date. с. Accrued wages payable to employees of $3,500 were not recorded on December 31, Year 4. This amount was expensed when paid in January, Year 5. d. Fiona sold land on December 31, Year 3, for $20,000, which was $2,000 above book value. Fiona recorded this journal entry: е. Cash 20,000 Land 18,000 2,000 Retained Earnings f. Fiona rented office space to Tyler's Company on January 1, Year 3. Fiona received an advanced payment of $40,000 on that date; the payment covered the Years 3 through 6. Fiona recorded this journal entry on January 1, Year 3: Cash 40,000 Rent Payable 40,000 No journal entries related to this rent have been recorded since the initial cash receipt on January 1, Year 3. g. Fiona failed to accrue $10,000 of Interest Revenue for interest earned in Year 2. Revenue was recorded when the cash collection was received in Year 3. Fiona exchanged an old machine for a similar machine on December 31, Year 5. Original cost of the old machine was $66,000; Updated accumulated depreciation was $30,000. The newer machine had a fair value of $38,000; Fiona received $2,000 in the exchange. The exchange did not have commercial substance, but Fiona recorded the event as if the event had commercial h. substance. i. The Allowance for Doubtful Accounts has been based on a 2% uncollectible rate for several years, including Year 5 and Year 4. However, further analysis of the 12/31 Year 4 Accounts Receivable revealed that 2.2% of those receivables were not collected. Fiona chose to again use the 2% rate to determine the 12/31 Year 5 Allowance account, believing that 2% is the most representative rate for the uncollectible account balance at that date. Installment payments on Fiona's long-term debt begin in Year 6; $10,000 is due each year for j. four years. Fiona does not intend to make the Year 6 scheduled payment; the Year 6 and Year 7 amounts will be paid in Year 7, including interest and penalties totaling $2,720. Fiona Company Income Statements For Year Ended December 31 Year 5 For Year Ended December 31 Year 4 $850,000 (340,000) Sales $800,000 (400,000) Cost of Goods Sold Gross Profit $510,000 $400,000 Operating Expenses: Insurance (9,000) (29,000) Wages Depreciation (229,000) (140,000) (230,000) (130,000) Income from Operations $132,000 $11,000 Other Revenues and Expenses: Interest Revenue 28,000 (4,300) 23,000 4,000 30,000 (4,400) 25,000 -0- Bad Debt Expense Rent Revenue Gain on Exchange of Machine Net Income $182,700 $61,600 Fiona Company Balance Sheets December 31, Year 5 December 31, Year 4 Assets Current Assets $580,100 Cash and Equivalents Receivables (net of allowance) $340,000 196,000 220,500 85,000 30,300 75,000 22,500 633,500 Inventories Prepaid Expenses and Other Assets Total Current Assets 915,900 Land 72,000 90,000 Plant and Machines, Net 320,000 275,000 29,800 $1.028,300 Other Assets 28,300 $1.336.200 Total Assets Liabilities and Shareholders' Equity Current Liabilities Accounts Payable Rent Payable $59,000 61,000 $10,400 43,000 Unearned Revenue 3,000 2,400 4,000 Wages Payable Current Portion of Long-Term Debt 17,000 10,000 -0- Total Current Liabilities 151,000 $58,800 Long-Term Debt Total Liabilities 30,000 $181,000 40,000 98,800 Shareholders' Equity Common Stock 100,000 100,000 Additional Paid-In Capital Retained Earnings 792,000 314,100 749,000 131,400 (50,900) Treasury Stock (at cost) Total Shareholders' Equity Total Liabilities and Shareholders' Equity (50,900) 1.155,200 929,500 $1,336,200 $1,028,300 REQUIRED 1. Correcting journal entries, if applicable, for items a. through j. If no correcting journal entry is needed, indicate "No CJE." 2. Corrected and restated Year 5/Year 4 Fiona comparative income statement and balance sheet. Fiona Company began operations on January 1, Year 1. The company has drafted its Year 5 comparative financial statements. Adjusting Journal Entries have been recorded; the Year 5 books are still open. Fiona will be audited for the first time. Auditors have discovered the following possible errors: Fiona purchased a machine on June 30, Year 2, paying $30,000 cash. The machine has a salvage value of $5,000 and a useful life of 5 years. The bookkeeper recorded straight-line depreciation for each year through Year 5, but failed to consider the salvage value. а. b. The physical inventory count on December 31, Year 4, improperly excluded merchandise costing $5,000 that had been temporarily stored in a public warehouse. Fiona uses a periodic inventory system. An $18,000 insurance premium was paid on October 1, Year 4, for a policy that expires on September 30, Year 7. The premium was charged to Insurance Expense when paid. No adjustments have been recorded since the payment date. с. Accrued wages payable to employees of $3,500 were not recorded on December 31, Year 4. This amount was expensed when paid in January, Year 5. d. Fiona sold land on December 31, Year 3, for $20,000, which was $2,000 above book value. Fiona recorded this journal entry: е. Cash 20,000 Land 18,000 2,000 Retained Earnings f. Fiona rented office space to Tyler's Company on January 1, Year 3. Fiona received an advanced payment of $40,000 on that date; the payment covered the Years 3 through 6. Fiona recorded this journal entry on January 1, Year 3: Cash 40,000 Rent Payable 40,000 No journal entries related to this rent have been recorded since the initial cash receipt on January 1, Year 3. g. Fiona failed to accrue $10,000 of Interest Revenue for interest earned in Year 2. Revenue was recorded when the cash collection was received in Year 3. Fiona exchanged an old machine for a similar machine on December 31, Year 5. Original cost of the old machine was $66,000; Updated accumulated depreciation was $30,000. The newer machine had a fair value of $38,000; Fiona received $2,000 in the exchange. The exchange did not have commercial substance, but Fiona recorded the event as if the event had commercial h. substance. i. The Allowance for Doubtful Accounts has been based on a 2% uncollectible rate for several years, including Year 5 and Year 4. However, further analysis of the 12/31 Year 4 Accounts Receivable revealed that 2.2% of those receivables were not collected. Fiona chose to again use the 2% rate to determine the 12/31 Year 5 Allowance account, believing that 2% is the most representative rate for the uncollectible account balance at that date. Installment payments on Fiona's long-term debt begin in Year 6; $10,000 is due each year for j. four years. Fiona does not intend to make the Year 6 scheduled payment; the Year 6 and Year 7 amounts will be paid in Year 7, including interest and penalties totaling $2,720. Fiona Company Income Statements For Year Ended December 31 Year 5 For Year Ended December 31 Year 4 $850,000 (340,000) Sales $800,000 (400,000) Cost of Goods Sold Gross Profit $510,000 $400,000 Operating Expenses: Insurance (9,000) (29,000) Wages Depreciation (229,000) (140,000) (230,000) (130,000) Income from Operations $132,000 $11,000 Other Revenues and Expenses: Interest Revenue 28,000 (4,300) 23,000 4,000 30,000 (4,400) 25,000 -0- Bad Debt Expense Rent Revenue Gain on Exchange of Machine Net Income $182,700 $61,600 Fiona Company Balance Sheets December 31, Year 5 December 31, Year 4 Assets Current Assets $580,100 Cash and Equivalents Receivables (net of allowance) $340,000 196,000 220,500 85,000 30,300 75,000 22,500 633,500 Inventories Prepaid Expenses and Other Assets Total Current Assets 915,900 Land 72,000 90,000 Plant and Machines, Net 320,000 275,000 29,800 $1.028,300 Other Assets 28,300 $1.336.200 Total Assets Liabilities and Shareholders' Equity Current Liabilities Accounts Payable Rent Payable $59,000 61,000 $10,400 43,000 Unearned Revenue 3,000 2,400 4,000 Wages Payable Current Portion of Long-Term Debt 17,000 10,000 -0- Total Current Liabilities 151,000 $58,800 Long-Term Debt Total Liabilities 30,000 $181,000 40,000 98,800 Shareholders' Equity Common Stock 100,000 100,000 Additional Paid-In Capital Retained Earnings 792,000 314,100 749,000 131,400 (50,900) Treasury Stock (at cost) Total Shareholders' Equity Total Liabilities and Shareholders' Equity (50,900) 1.155,200 929,500 $1,336,200 $1,028,300 REQUIRED 1. Correcting journal entries, if applicable, for items a. through j. If no correcting journal entry is needed, indicate "No CJE." 2. Corrected and restated Year 5/Year 4 Fiona comparative income statement and balance sheet.
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Here the Correcting Journal Entry is required Accrued Wages payable refer to those wages on which an ... View the full answer
Related Book For
International Accounting
ISBN: 978-1260466539
5th edition
Authors: Timothy Doupnik, Mark Finn, Giorgio Gotti, Hector Perera
Posted Date:
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