You are the accountant for Celebration Company, and your assistant has prepared the following income statement for the year ended December 31, 2010:

You have uncovered the following facts:
a. Sales revenue includes $6,000 of items that have been back-ordered. (The items have not been delivered to the customers, although the customers have paid for the items.)
b. Selling expenses include $4,000 of allowances that were given to customers who received damaged products.
c. Rent expense includes $400 worth of rent that applies to 2011.
d. Salary expenses include $10,000 loaned to one of the executives for a boat.

1. Prepare a corrected multistep income statement for the year. Celebration shows sales as the net amount only on its income statement.
2. Write a memo to your assistant explaining why each error you found is incorrect and what the correct accounting treatment shouldbe.

  • CreatedSeptember 01, 2014
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