Need help with an Intermediate Accounting 14th/13th Edition Kieso Chapter 22 Problem 10: You have been asked by a client to review the records of Roberts Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Your examination reveals the following information: 1. Roberts Company commenced business on April 1, 2010, and has been reporting on a fiscal year ending March 31. The company has never been audited, but the annual statements prepared by the bookkeeper reflect the following income before closing and before deducting income taxes. Year End March 31, ---- Income Before Taxes 2011 $71,600 2012 111,400 2013 103,580 2. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31, of each year, machines billed in the hands of consignees amounted to : 2011-- $6,500 2012--NONE 2013--5,590 Sales price was determined by adding 25% to cost. Assume that the consigned machines are sold the following year. 3. On March 30, 2012, two machines were shipped to a customer on a C.O.D. basis. The sale was not entered until April 5, 2012, when cash was received for $6,100. The machines were not included in the inventory at March 31, 2012. (Title passed on March 30, 2012). 4. All machines are sold subject to a 5 year warranty. It is estimated that the expense ultimately to be incurred in connection with the warranty will amount to 1/2 of 1% of sales. The company has charged an expense account for warranty costs incurred. Sales per books and warranty costs were as followed: Year Ended March 31, ------- Sales ---------- Warranty Expense for Sales Made in: 2011-------2012-------2013-------- Total 2011 ----------------------------$940,000------$760--------------------------------------$760 2012---------------------------$1,010,000-------$360------$1,310----------------------$1,670 2013---------------------------$1,795,000-------$320------$1,620-------$1,910------$3,850 5. Bad debts have been recorded on a direct write-off basis. Experience of similar enterprises indicates that losses will approximate 1/4 of 1% of sales. Bad debts written off were: YEAR---------------------------BAD DEBT INCURRED ON SALES MADE IN: 2011 ----------- 2012 ----------- 2013 --------- TOTAL 2011 ----------------------------$750---------------------------------------------------$750 2012----------------------------$800--------------520--------------------------------$1,320 2013----------------------------$350--------------1800-------------1700-----------$3,850 6. The bank deducts 6% on all contracts financed. Of this amount, 1/2% is placed in a reserved to the credit of Roberts Company that is refunded to Roberts as finance contracts are paid in full. The reserve established by the bank has not been reflected in the books of Roberts. The excess of credits over debits (net increase) to the reserve account with Roberts on the books of the bank for each of the fiscal years were as follows: 2011---$3,000 2012---$3,900 2013---$5,100 ----------------- $12,000 7. Commisions on sales have been entered when paid. Commissions payable on March 31, of each year were as follows: 2011---$1,400 2012---$800 2013---$1,120 8. A review of the corporate minutes reveals the manager is entitled to a bonus of 1/2 of 1% of the income before deducting income taxes and the bonus. The bonuses have never been recorded or paid. (a) Present a schedule showing the revised income before income taxes for each of the years ended March 31, 2011 through 2013. (b) Show all of the computations to support your revisions for (a) above. (c) Prepare the journal entry or entries you would give the bookkeeper to correct the books. Assume the books have not yet been closed for the fiscal year ended March 31, 2013. Disregard correction of income taxes