On July 1 of Year 8, a full year's insurance premium of $2,880, covering the period...
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On July 1 of Year 8, a full year's insurance premium of $2,880, covering the period July 1 of Year 8 to June 30 of Year 9, was paid and debited to insurance expense. Assume the following: The company has a calendar fiscal year. January 1 of Year 8, retained earnings balance is $24,000. Year 8 reported net income (assuming the error is not discovered) is $27,360. Year 9 net income (assuming the error is not discovered) is $36,000. Year 10 net income is $48,000. Ignore taxes. Required a. List the effects of the error on affected accounts and on net income in Year 8 and Year 9. Assume no adjusting entry is made on December 31 of Year 8. Note: Indicate an understatement by using a negative sign (-) with the amount. Indicate no change by entering a zero (0). Accounts are over (under) stated as follows: Insurance expense Ending prepaid insurance Net income Ending retained earnings $ Year 8 1,440 1,440 x 1,440 x 1,440 x Year 9 1,440 x 0 1,440 0 c. Prepare the entry to record the error if discovered in Year 9. Prepare the Year 8 and Year 9 retained earnings sections of the statement of stockholders' equity. Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero). Ref. C. Insurance Expense Account Retained Earnings-Prior Period Adjustment To correct error. Retained earnings beginning, adjusted $ Net income Retained earnings, ending $ Year 8 24,000 $ 27,360 * 51,360 x $ Dr. Year 9 1,440 0 51,360 x 36,000 * 87,360 Cr. 0 1,440 d. Prepare the entry (if needed) to record the error if discovered in Year 10. Prepare the Year 9 and Year 10 retained earnings sections of the statement of stockholders' equity. Note: If a journal entry isn't required on any of the dates shown, select "N/Adebit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero). Ref. Account d. Retained Earnings-Prior Period Adjustment To correct error. Retained earnings, beginning as reported $ Prior period adjustment Retained earnings beginning, adjusted Net income Retained earnings, ending $ Year 9 0 x 0 x 0 x $ 0 x 0 x $ Dr. Year 10 0 0 0 x 0 x 0 x Cr. 0x 0 x On July 1 of Year 8, a full year's insurance premium of $2,880, covering the period July 1 of Year 8 to June 30 of Year 9, was paid and debited to insurance expense. Assume the following: The company has a calendar fiscal year. January 1 of Year 8, retained earnings balance is $24,000. Year 8 reported net income (assuming the error is not discovered) is $27,360. Year 9 net income (assuming the error is not discovered) is $36,000. Year 10 net income is $48,000. Ignore taxes. Required a. List the effects of the error on affected accounts and on net income in Year 8 and Year 9. Assume no adjusting entry is made on December 31 of Year 8. Note: Indicate an understatement by using a negative sign (-) with the amount. Indicate no change by entering a zero (0). Accounts are over (under) stated as follows: Insurance expense Ending prepaid insurance Net income Ending retained earnings $ Year 8 1,440 1,440 x 1,440 x 1,440 x Year 9 1,440 x 0 1,440 0 c. Prepare the entry to record the error if discovered in Year 9. Prepare the Year 8 and Year 9 retained earnings sections of the statement of stockholders' equity. Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero). Ref. C. Insurance Expense Account Retained Earnings-Prior Period Adjustment To correct error. Retained earnings beginning, adjusted $ Net income Retained earnings, ending $ Year 8 24,000 $ 27,360 * 51,360 x $ Dr. Year 9 1,440 0 51,360 x 36,000 * 87,360 Cr. 0 1,440 d. Prepare the entry (if needed) to record the error if discovered in Year 10. Prepare the Year 9 and Year 10 retained earnings sections of the statement of stockholders' equity. Note: If a journal entry isn't required on any of the dates shown, select "N/Adebit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero). Ref. Account d. Retained Earnings-Prior Period Adjustment To correct error. Retained earnings, beginning as reported $ Prior period adjustment Retained earnings beginning, adjusted Net income Retained earnings, ending $ Year 9 0 x 0 x 0 x $ 0 x 0 x $ Dr. Year 10 0 0 0 x 0 x 0 x Cr. 0x 0 x
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Prior Period Items are those items which was not revealed in last year comes to knowledge in current ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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