Nash Tool Company's December 31 year-end financial statements contained the following errors. December 31, 2020 December...
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Nash Tool Company's December 31 year-end financial statements contained the following errors. December 31, 2020 December 31, 2021 Ending inventory $10,500 understated $8,200 overstated Depreciation expense $2,400 understated An insurance premium of $69,000 was prepaid in 2020 covering the years 2020, 2021, and 2022. The entire amount was charged to expense in 2020. In addition, on December 31, 2021, fully depreciated machinery was sold for $16,000 cash, but the entry was not recorded until 2022. There were no other errors during 2020 or 2021, and no corrections have been made for any of the errors. (Ignore income tax considerations.) (a) Compute the total effect of the errors on 2021 net income. Total effect of errors on net income $ (b) Compute the total effect of the errors on the amount of Nash's working capital at December 31, 2021. Total effect on working capital $ (c) Compute the total effect of the errors on the balance of Nash's retained earnings at December 31, 2021. Total effect on retained earnings $ Bonita Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018-2020. Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2018 $16,080 $18,950 $12,100 2019 2020 17,970 21,210 14,110 20,030 25,200 17,160 (a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit (b) Determine net income to be reported for 2018, 2019, and 2020, after giving effect to the change in accounting principle. 2018 $ 2019 $ 2020 $ Net Income (c) Assume Bonita Company used the LIFO method instead of the average cost method during the years 2018-2020. In 2021, Bonita changed to the FIFO method. Prepare the journal entry necessary to record the change in principle. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit In 2020, Oriole Corporation discovered that equipment purchased on January 1, 2018, for $48,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Oriole uses straight-line depreciation. Prepare Oriole's 2020 journal entry to correct the error. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit The before-tax income for Flounder Co. for 2020 was $101,000 and $84,100 for 2021. However, the accountant noted that the following errors had been made: 1. Sales for 2020 included amounts of $36,200 which had been received in cash during 2020, but for which the related products were delivered in 2021. Title did not pass to the purchaser until 2021. 2. The inventory on December 31, 2020, was understated by $9,500. 3. The bookkeeper in recording interest expense for both 2020 and 2021 on bonds payable made the following entry on an annual basis. Interest Expense 13,800 Cash 13,800 The bonds have a face value of $230,000 and pay a stated interest rate of 6%. They were issued at a discount of $14,000 on January 1, 2020, to yield an effective-interest rate of 7%. (Assume that the effective-yield method should be used.) 4. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2020 and 2021. Repairs in the amount of $8,100 in 2020 and $8,500 in 2021 were so charged. The company applies a rate of 10% to the balance in the Equipment account at the end of the year in its determination of depreciation charges. Prepare a schedule showing the determination of corrected income before taxes for 2020 and 2021. (Enter negative amounts using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round answers to O decimal places, e.g. 125.) Income Before Tax Corrections: 2020 $ Corrected Income Before Tax $ $ 2021 Nash Tool Company's December 31 year-end financial statements contained the following errors. December 31, 2020 December 31, 2021 Ending inventory $10,500 understated $8,200 overstated Depreciation expense $2,400 understated An insurance premium of $69,000 was prepaid in 2020 covering the years 2020, 2021, and 2022. The entire amount was charged to expense in 2020. In addition, on December 31, 2021, fully depreciated machinery was sold for $16,000 cash, but the entry was not recorded until 2022. There were no other errors during 2020 or 2021, and no corrections have been made for any of the errors. (Ignore income tax considerations.) (a) Compute the total effect of the errors on 2021 net income. Total effect of errors on net income $ (b) Compute the total effect of the errors on the amount of Nash's working capital at December 31, 2021. Total effect on working capital $ (c) Compute the total effect of the errors on the balance of Nash's retained earnings at December 31, 2021. Total effect on retained earnings $ Bonita Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018-2020. Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2018 $16,080 $18,950 $12,100 2019 2020 17,970 21,210 14,110 20,030 25,200 17,160 (a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit (b) Determine net income to be reported for 2018, 2019, and 2020, after giving effect to the change in accounting principle. 2018 $ 2019 $ 2020 $ Net Income (c) Assume Bonita Company used the LIFO method instead of the average cost method during the years 2018-2020. In 2021, Bonita changed to the FIFO method. Prepare the journal entry necessary to record the change in principle. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit In 2020, Oriole Corporation discovered that equipment purchased on January 1, 2018, for $48,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Oriole uses straight-line depreciation. Prepare Oriole's 2020 journal entry to correct the error. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit The before-tax income for Flounder Co. for 2020 was $101,000 and $84,100 for 2021. However, the accountant noted that the following errors had been made: 1. Sales for 2020 included amounts of $36,200 which had been received in cash during 2020, but for which the related products were delivered in 2021. Title did not pass to the purchaser until 2021. 2. The inventory on December 31, 2020, was understated by $9,500. 3. The bookkeeper in recording interest expense for both 2020 and 2021 on bonds payable made the following entry on an annual basis. Interest Expense 13,800 Cash 13,800 The bonds have a face value of $230,000 and pay a stated interest rate of 6%. They were issued at a discount of $14,000 on January 1, 2020, to yield an effective-interest rate of 7%. (Assume that the effective-yield method should be used.) 4. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2020 and 2021. Repairs in the amount of $8,100 in 2020 and $8,500 in 2021 were so charged. The company applies a rate of 10% to the balance in the Equipment account at the end of the year in its determination of depreciation charges. Prepare a schedule showing the determination of corrected income before taxes for 2020 and 2021. (Enter negative amounts using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round answers to O decimal places, e.g. 125.) Income Before Tax Corrections: 2020 $ Corrected Income Before Tax $ $ 2021
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Related Book For
Intermediate Accounting Volume 2
ISBN: 9781119497042
12th Canadian Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
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