Problem $4$: Analysis and Correction of Accounting Errors

$33$ pts

Bothell Corporation began operations on December $31,2023.$ The controller is concerned about certain business transactions that$-$the company detected in $2025.$ The transactions at issue are presented below.

A$.$ The company has mistakenly recognized bad debt expense when the receivables have actually become uncollectible in the following amounts:

$20242025$

$31,80065,000$

The controller estimates that bad debt expense based on a GAP accepted method the percentage of accounts recivale$)$ should be $$54,000$ for $2024,$ and $$83,000$ for $2025.$

B$.$ Inventory has been shipped on consignment. These transactions have been mistakenly recorded as ordinary sales and billed as such on account. Inventory billed and in the hands of consignees amounted to $$280,000$ at December $31,2024,$ and $$425000$ at December $31,2025.$ The cost of goods sold is $80\%$ of the selling price in each year. Assume that al the consigned inventory is sold. in the following year. The company uses the perpetual inventory system.

C$.$ Ending inventory was overstated by $$8,000$ on December $31,2024,$ and overstated by $55,000$ on December $31,2025.$

D$.$ On January $1,2024,$ a truck was purchased for $$28,000.$ The truck had an estimated life of eight years but it was imediately expensed by error. The acquisition cost should have been capitalized, and straight$-$line depreciation should have been used with $$2,000$ estimated salvage value.

E$.$ The company has failed to accrue sales commissions payable at the end of each of the last $2$ years, as follows Sales commission expenses are recorded when they are paid in the next year.

$31-$Dec$-24$ $$5,500$

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