Paul Weller became CEO of The Jam on 1 January 2023 and noted the following financial...

 

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Paul Weller became CEO of The Jam on 1 January 2023 and noted the following financial reporting issues: a. Merchandise inventory on 31 December 2022 was understated by $15,000 (periodic inventory). b. The Jam failed to record a contingent liability associated with a lawsuit in 2022. The loss was both estimable and probable and amounted to $40,000. c. A machine purchased for jam production on 1/1/2020 was immediately expensed. The machine cost $100,000 and has and estimated economic life of 10 years with no salvage value. d. A building was purchased on January 1, 2010 for $2,000,000. The building was originally assigned a depreciable life of 20 years with a salvage value of $200,000. Weller has determined that as of 1/1/23 the building has a remaining economic life of 10 years and a salvage value of $130,000. Required: Determine whether each of the four financial reporting issues above is an error correction or a change in estimate. If the issue reflects an error, generate the necessary correcting journal entry on 1/1/23. If the issue is a change in estimate, record the appropriate journal entry on 12/31/23 reflecting the change. Paul Weller became CEO of The Jam on 1 January 2023 and noted the following financial reporting issues: a. Merchandise inventory on 31 December 2022 was understated by $15,000 (periodic inventory). b. The Jam failed to record a contingent liability associated with a lawsuit in 2022. The loss was both estimable and probable and amounted to $40,000. c. A machine purchased for jam production on 1/1/2020 was immediately expensed. The machine cost $100,000 and has and estimated economic life of 10 years with no salvage value. d. A building was purchased on January 1, 2010 for $2,000,000. The building was originally assigned a depreciable life of 20 years with a salvage value of $200,000. Weller has determined that as of 1/1/23 the building has a remaining economic life of 10 years and a salvage value of $130,000. Required: Determine whether each of the four financial reporting issues above is an error correction or a change in estimate. If the issue reflects an error, generate the necessary correcting journal entry on 1/1/23. If the issue is a change in estimate, record the appropriate journal entry on 12/31/23 reflecting the change.

Answer rating: 100% (QA)

a Understated inventory is an error correction When inventory is understated at yearend it results i... View the full answer