Intermediate Accounting: Reporting and Analysis
2nd Edition
ISBN: 9781285453828
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Chapter 2, Problem 12C
To determine
Identify the type of accounting assumption or principle each procedure or practice violates, and also indicate the manner by which these violations can be rectified.
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Candle Co. performs an inventory court at year - end. The company records a ending balance of $56,000 for inventory on its balance sheet. During the following year, the accountant discovers that the ending inventory was miscounted, causing ending inventory to be overstated by $2, 500. a. What is the effect of the misstatement on the income statement? b. Besides ending inventory, what was the effect of the error on the balance sheet?
At the beginning of the year Candle Co. has an inventory balance of $32,000. The company has net income for the year of $56,000. Later, the accountant discovers an error that caused the beginning invenotory to be understated by $6,000. a. Assuming no other changes, what is the correct net income for the year? b. If the error was discovered after year-end, what was the effect of the error on the balance sheet?
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April showers sells goods on credit to most of it's customers. In order to control it's debtor collection system the company maintains a sale ledger control account. In preparing the accounts for the year to 31 October 2019 the accountant discovers that the total of all the personal accounts in the sales ledger account to sh.12,802 whereas the balance on the sales ledger control account is sh.12,550 Upon investigating the matter, the following errors were discovered.- sales for the week ending 27 March 2019 amounting to sh 850 had been ommited from the control account.- A debtor account balance of sh 300 had not been included in the list of balance .- Cash received of sh. 750 had been entered in a personal account as sh. 570.- Discounts allowed totalling sh.100 had not been entered in the control account.- A personal account balance had been undercast by sh.200.- A contra item of sh.400 with the purchase ledger had not been entered in the control account.- A bad debt of sh.500 had…
Chapter 2 Solutions
Intermediate Accounting: Reporting and Analysis
Ch. 2 - Prob. 1GICh. 2 - Prob. 2GICh. 2 - How do accounting concepts, principles, standards,...Ch. 2 - Prob. 4GICh. 2 - Prob. 5GICh. 2 - Prob. 6GICh. 2 - What is the Objective: Useful Information about...Ch. 2 - Prob. 8GICh. 2 - Prob. 9GICh. 2 - Define (a) return on investment, (b) risk, (c)...
Ch. 2 - Prob. 11GICh. 2 - Prob. 12GICh. 2 - Prob. 13GICh. 2 - Prob. 14GICh. 2 - Prob. 15GICh. 2 - Prob. 16GICh. 2 - What is the cost constraint, and how does it...Ch. 2 - Prob. 18GICh. 2 - Prob. 19GICh. 2 - Prob. 20GICh. 2 - Prob. 21GICh. 2 - Prob. 22GICh. 2 - Prob. 23GICh. 2 - Describe accrual accounting. What are the...Ch. 2 - What drives the timing of revenue recognition?...Ch. 2 - Prob. 26GICh. 2 - Prob. 27GICh. 2 - Prob. 28GICh. 2 - Prob. 29GICh. 2 - The information provided by financial reporting...Ch. 2 - Which of the following is considered a constraint...Ch. 2 - According to Statement of Financial Accounting...Ch. 2 - Prob. 4MCCh. 2 - Prob. 5MCCh. 2 - Prob. 6MCCh. 2 - Accruing net losses on obsolete inventory is an...Ch. 2 - Prob. 8MCCh. 2 - An accrued expense is an expense: a. incurred but...Ch. 2 - Prob. 10MCCh. 2 - Prob. 1ECh. 2 - Prob. 2ECh. 2 - Prob. 1CCh. 2 - Prob. 2CCh. 2 - Prob. 3CCh. 2 - Prob. 4CCh. 2 - An accountant must be familiar with the concepts...Ch. 2 - Prob. 6CCh. 2 - Prob. 7CCh. 2 - Prob. 8CCh. 2 - Prob. 9CCh. 2 - Accruals and Deferrals Generally accepted...Ch. 2 - Prob. 11CCh. 2 - Prob. 12CCh. 2 - You have been hired as an accounting consultant by...Ch. 2 - Prob. 14C
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- A company has several branch operations that sell merchandise transferred from the home office. This inventory at billed price of 20 percent more than cost. In producing financial statements for the company as a whole, what happens at the end of the year?A. The unrealized gain on any remaining inventory is eliminated for financial reporting purposes.B. The gain remains as reported since the amount would be immaterial.C. Any remaining gain is reported as a contra balance to the Purchase account.D. Any remaining is reported as a contra balance to the Branch account. Answer pleasearrow_forwardApril showers sells goods on credit to most of it's customers. In order to control it's debtor collection system the company maintains a sale ledger control account. In preparing the accounts for the year to 31 October 2019 the accountant discovers that the total of all the personal accounts in the sales ledger account to sh.12,802 whereas the balance on the sales ledger control account is sh.12,550 Upon investigating the matter, the following errors were discovered. - sales for the week ending 27 March 2019 amounting to sh 850 had been ommited from the control account. - A debtor account balance of sh 300 had not been included in the list of balance . - Cash received of sh. 750 had been entered in a personal account as sh. 570. - Discounts allowed totalling sh.100 had not been entered in the control account. - A personal account balance had been undercast by sh.200. - A contra item of sh.400 with the purchase ledger had not been entered in the control account. - A bad debt of…arrow_forwardApril showers sells goods on credit to most of its customers. In order to control its debtor collection system, the company maintaiņs a sales ledger control account. In preparing the accounts for the year to 31 October 2019 the accountant discovers that the total of all the personal accounts in the sales ledger amounts to sh12, 802, whereas the balance on the sales ledger control account is sh12,550. Upon investigating the matter, the following errors were discovered: 1. Sales for the week ending 27 March 2019 amounting to sh850 had been omitted from the control accoun t. 2. A debtor's account balance of sh300 had not been included in the list of balances. &. Cash received of sh 750 had been entered in a personal account as sh570. 4. Discounts allowed totaling sh100 had not been entered in the control account. 5. A personal account balance had been undercast by sh200. a. A contra item of sh400 with the purchase ledger had not been entered in the control account. 1. A bad debt of sh500…arrow_forward
- Problem 3 Inventories, Depreciation & Accounting for Receivables Chad Goldman was operating a gold business on his own prior to starting the Company, Goldy Inc. in July 2021. He has to organize his financial records and asked for your assistance in specific areas. The following information about the company for the month of July 2021, is as follows: July 1 July 1 Beginning inventory 100 gold at a cost of $340 per gold unit. Purchased equipment for $280,000. July 3 Purchased 200 gold at a cost of $350 each. July 5 Sold 180 gold for $730 each. July 10 75 gold units from the sale on July 5 were returned to inventory. July 11 Purchased 350 gold at a cost of $380 each. July 25 Sold 400 gold for $750 each. Purchased a building with a cash price of $450,000, Člosing Cost amounted to $25,000 and remodeling charges of $45,000. July 31 NOTES: v The company implemented the FIFO cost flow assumption and a perpetual inventory system. V The building purchased on July 31 has an estimated useful life…arrow_forwardFor each of the following potential unrecorded liabilities, determine the effects of the omission on both the balance sheet and income statement of the client. Assume that the inventories recorded on the balance sheet reflect the results of a year-end (December 31) physical inventory. Required: a. An invoice for $3,000 worth of inventory items, dated January 1 and bearing terms of FOB destination, was not recorded. The goods were shipped December 27 and were received on December 30. b. An invoice for $5,500 worth of inventory items, dated December 30 and bearing terms of FOB destination, was not recorded. The goods were shipped December 28 and received January 2. c. An invoice for $8,000 for a delivery truck, dated January 2 and bearing terms of FOB shipping point, was not recorded. The truck was shipped December 30 and received on January 3. d. An invoice for $1,000 for legal fees rendered in December was not recorded.arrow_forwardTopic: SINGLE-ENTRY BOOKKEEPING SANAOL Company suspects that there is missing inventory in its warehouse at December 31, 2021. All sales and purchases were made on account. Also, the gross profit rate based on net sales is consistent every year. To aid in your investigation, you obtained the following: How much is the missing inventory during the year?arrow_forward
- Topic: SINGLE-ENTRY BOOKKEEPING BARUMBUM Company suspects that there is missing inventory in its warehouse at December 31, 2021. All sales and purchases were made on account. Also, the gross profit rate based on net sales is consistent every year. To aid in your investigation, you obtained the following: How much is the net purchases during the year?arrow_forwardGross Profit Shelly Corporation is an importer and wholesaler. Its merchandise is purchased from several suppliers and is warehoused by Shelly until sold to consumers. In conducting her audit for the year ended June 30, 2019, the corporations CPA determined that the system of internal control was good. Accordingly, she observed the physical inventory at an interim date, May 31, 2019, instead of at year-end. The CPA obtained the following information from the general ledger: The CPAs audit disclosed the following information: Required: In audit engagements in which interim physical inventories are observed, a frequently used auditing procedure is to test the reasonableness of the year-end inventory by the application of gross profit ratios. Prepare in good form the following schedules: 1. Computation of the gross profit ratio for 11 months ended May 31, 2019 2. Computation by the gross profit ratio method of cost of goods sold during June 2019 3. Computation by the gross profit ratio method of June 30, 2019 inventoryarrow_forwardRefer to the information in E22-13. Required: Prepare the correcting journal entries if the company discovers each error 2 years after it is made and it has closed the books for the second year. Ignore income taxes. E22-13: The following are independent errors made by a company that uses the periodic inventory system: a. Goods in transit, purchased on credit and shipped FOB destination, 10,000, were included in purchases but not in the physical count of ending inventory. b. Purchase of a machine for 2,000 was expensed. The machine has a 4-vear life, no residual value, and straight-line depreciation is used. c. Wages payable of 2,000 were not accrued. d. Payment of next years rent, 4,000, was recorded as rent expense. e. Allowance for doubtful accounts of 5,000 was not recorded. The company normally uses the aging method. f. Equipment with a book value of 70,000 and a fair value of 100,000 was sold at the beginning of the year. A 2-year, non-interest-bearing note for 129,960 was received and recorded at its face value, and a gain of 59,960 was recognized. No interest revenue was recorded and 14% is a fair rate of interest.arrow_forward
- If Wakowski Companys ending inventory was actually $86,000 but was adjusted at year end to a balance of $68,000 in error, what would be the impact on the presentation of the balance sheet and income statement for the year that the error occurred, if any?arrow_forwardTanke Company reported net income on the year-end financial statements of $850,200. However, errors in inventory were discovered after the reports were issued. If inventory was overstated by $21,000, how much net income did the company actually earn?arrow_forwardShannon Corporation began operations on January 1, 2019. Financial statements for the years ended December 31, 2019 and 2020, contained the following errors: In addition, on December 31, 2020, fully depreciated machinery was sold for 10,800 cash, but the sale was not recorded until 2021. There were no other errors during 2019 or 2020, and no corrections have been made for any of the errors. Refer to the information for Shannon Corporation above. Ignoring income taxes, what is the total effect of the errors on the amount of working capital (current assets minus current liabilities) at December 31, 2020? a. working capital overstated by 4,200 b. working capital understated by 5,800 c. working capital understated by 6,000 d. working capital understated by 9,800arrow_forward
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