Hinckley Company is in the process of adjusting its books at the end of 2011.
Hinckley’s records reveal the following information:
(a) Hinckley failed to accrue sales commissions at the end of 2009 and 2010 as follows:
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,000
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,250
In each case, the sales commissions were paid (and expensed) in January of the following year.
(b) Errors in ending inventories for the last three years were discovered to be as follows:
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,300 understated
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,200 overstated
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 understated
The incorrect amount has already been recorded for 2011.
Instructions:
1. Prepare the necessary journal entries at December 31, 2011, to record the preceding information. Assume that the books are still open for 2011. Ignore all income tax effects.
2. Assume that the unadjusted retained earnings balance at the beginning of 2011 was $1,265,000 and that the unadjusted net income for 2011 was $300,000. Also assume that dividends of $175,000 were declared during 2011. Prepare a statement of retained earnings for Hinckley Company for 2011, reflecting appropriate adjustments from (1). Assume that there are no income taxes.