Faubert Company began operations on January 1, Year 1. The company has drafted its Year 5...
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Faubert 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. Faubert will be audited for the first time. Auditors have discovered the following possible errors: a. Faubert 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. 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. Faubert 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. d. 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. Faubert sold land on December 31, Year 3, for $20,000, which was $2,000 above book value. Faubert recorded this journal entry: е. Cash 20,000 18,000 2,000 Land Retained Earnings f. Faubert rented office space to Blake Company on January 1, Year 3. Faubert received an advanced payment of $40,000 on that date; the payment covered the Years 3 through 6. Faubert 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. Faubert 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. h. Faubert 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; Faubert received $2,000 in the exchange. The exchange did not have commercial substance, but Faubert recorded the event as if the event had commercial substance. i. 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. Faubert 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. The Allowance for Doubtful Accounts has been based on a 2% uncollectible rate for several j. Installment payments on Faubert's long-term debt begin in Year 6; $10,000 is due each year for four years. Faubert 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. Faubert Company Income Statements For Year Ended December 31 Year 5 For Year Ended December 31 Year 4 $850,000 (340,000) $800,000 (400,000) Sales Cost of Goods Sold Gross Profit $510,000 $400,000 Operating Expenses: Insurance (9,000) (29,000) (229,000) (140,000) (230,000) Wages Depreciation (130,000) Income from Operations $132,000 $11,000 Other Revenues and Expenses: Interest Revenue 28,000 (4,300) 23,000 30,000 (4,400) 25,000 Bad Debt Expense Rent Revenue Gain on Exchange of Machine 4,000 Net Income $182,700 $61,600 Faubert Company Balance Sheets December 31, Year 5 December 31, Year 4 Assets Current Assets Cash and Equivalents Receivables (net of allowance) $580,100 220,500 85,000 $340,000 196,000 75,000 Inventories Prepaid Expenses and Other Assets Total Current Assets 30,300 915,900 22,500 633,500 Land 72,000 320,000 90,000 275,000 29,800 Plant and Machines, Net Other Assets 28,300 $1,336,200 Total Assets $1.028,300 Liabilities and Shareholders' Equity Current Liabilities Accounts Payable Rent Payable $59,000 61,000 4,000 $10,400 43,000 3,000 Unearned Revenue 17,000 10,000 Wages Payable 2,400 Current Portion of Long-Term Debt -0- Total Current Liabilities 151,000 $58,800 Long-Term Debt 30,000 $181.000 40,000 98,800 Total Liabilities Shareholders' Equity Common Stock Additional Paid-In Capital 100,000 792,000 100,000 749,000 Retained Earnings Treasury Stock (at cost) Total Shareholders' Equity Total Liabilities and Shareholders' Equity 314,100 (50,900) 1.155,200 $1,336,200 131,400 (50,900) 929,500 $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 Faubert comparative income statement and balance sheet. Faubert 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. Faubert will be audited for the first time. Auditors have discovered the following possible errors: a. Faubert 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. 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. Faubert 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. d. 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. Faubert sold land on December 31, Year 3, for $20,000, which was $2,000 above book value. Faubert recorded this journal entry: е. Cash 20,000 18,000 2,000 Land Retained Earnings f. Faubert rented office space to Blake Company on January 1, Year 3. Faubert received an advanced payment of $40,000 on that date; the payment covered the Years 3 through 6. Faubert 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. Faubert 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. h. Faubert 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; Faubert received $2,000 in the exchange. The exchange did not have commercial substance, but Faubert recorded the event as if the event had commercial substance. i. 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. Faubert 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. The Allowance for Doubtful Accounts has been based on a 2% uncollectible rate for several j. Installment payments on Faubert's long-term debt begin in Year 6; $10,000 is due each year for four years. Faubert 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. Faubert Company Income Statements For Year Ended December 31 Year 5 For Year Ended December 31 Year 4 $850,000 (340,000) $800,000 (400,000) Sales Cost of Goods Sold Gross Profit $510,000 $400,000 Operating Expenses: Insurance (9,000) (29,000) (229,000) (140,000) (230,000) Wages Depreciation (130,000) Income from Operations $132,000 $11,000 Other Revenues and Expenses: Interest Revenue 28,000 (4,300) 23,000 30,000 (4,400) 25,000 Bad Debt Expense Rent Revenue Gain on Exchange of Machine 4,000 Net Income $182,700 $61,600 Faubert Company Balance Sheets December 31, Year 5 December 31, Year 4 Assets Current Assets Cash and Equivalents Receivables (net of allowance) $580,100 220,500 85,000 $340,000 196,000 75,000 Inventories Prepaid Expenses and Other Assets Total Current Assets 30,300 915,900 22,500 633,500 Land 72,000 320,000 90,000 275,000 29,800 Plant and Machines, Net Other Assets 28,300 $1,336,200 Total Assets $1.028,300 Liabilities and Shareholders' Equity Current Liabilities Accounts Payable Rent Payable $59,000 61,000 4,000 $10,400 43,000 3,000 Unearned Revenue 17,000 10,000 Wages Payable 2,400 Current Portion of Long-Term Debt -0- Total Current Liabilities 151,000 $58,800 Long-Term Debt 30,000 $181.000 40,000 98,800 Total Liabilities Shareholders' Equity Common Stock Additional Paid-In Capital 100,000 792,000 100,000 749,000 Retained Earnings Treasury Stock (at cost) Total Shareholders' Equity Total Liabilities and Shareholders' Equity 314,100 (50,900) 1.155,200 $1,336,200 131,400 (50,900) 929,500 $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 Faubert comparative income statement and balance sheet.
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Correcting journal entry for year 4 Prepaid Insurance Expense Ac ... 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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