Blossom Inc. is a calendar-year corporation. Its financial statements for the years 2022 and 2021 contained errors as follows 2022 2021 Ending Inventory $9100 overstated $18100 overstated Depreciation Expense $6100 understated $13600 overstated O $7600 overstated O $15200 overstated O $10600 overstated Assume that the proper correcting entries were made at December 31, 2021. By how much will 2022 income before taxes be overstated or understated?

Blossom Inc. is a calendar-year corporation. Its financial statements for the years 2022 and 2021 contained errors as follows 2022 2021 Ending Inventory $9100 overstated $18100 overstated Depreciation Expense $6100 understated $13600 overstated O $7600 overstated O $15200 overstated O $10600 overstated Assume that the proper correcting entries were made at December 31, 2021. By how much will 2022 income before taxes be overstated or understated?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 10MC: Shannon Corporation began operations on January 1, 2019. Financial statements for the years ended...

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Shannon 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 9,800
Schmidt Company began operations on January 1, 2018, and used the LIFO inventory method for both financial reporting and income taxes. However, at the beginning of 2020, Schmidt decided to switch to the average cost inventory method for financial and income tax reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the LIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Schmidt is subject to a 21% income tax rate in all years; it pays all income taxes payable in the next quarter. Assume that any deferred tax liability was paid in the subsequent year. Schmidt had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Schmidt had cash of 15,600, inventory of 34,000, other assets of 76,000, income taxes payable of 4,200, and accounts payable of 3,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in method at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.
Koopman Company began operations on January 1, 2018, and uses they FIFO inventory method for financial reporting and the average cost inventory method for income taxes. At the beginning of 2020, Koopman decided to switch to the average cost inventory method for financial reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Koopman is subject to a 21% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Koopman had cash of 10,000, inventory of 24,000, other assets of 70,800, accounts payable of 4,500, and income taxes payable of 6,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in methods at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.
In 2020, Frost Company, which began operations in 2018, decided to change from LIFO to FIFO because management believed that FIFO belter represented the flow of their inventory. Management prepared the following analysis showing the effect of this change: Frost reported net income of 2,500,000, 2,400,000, and 2,100,000 in 2018, 2019, and 2020, respectively. The tax rate is 21%. Required: 1. Prepare the journal entry necessary to record the change. 2. What amount of net income would Frost report in 2018, 2019, and 2020? 3. If Frosts employees received a bonus of 10% of income before deducting the bonus and income taxes in 2018 and 2019, what would be the effect on net income for 2018, 2019, and 2020?
Refer to the information for Cox Inc. above. What amount would Cox record as depreciation expense at December 31, 2020, if the double-declining-balance method were used? a. $187,200 b. $192,000 c. $195,200 d. $312, 000
At the end of 2019, Manny Company recorded its ending inventory at 350,000 based on a physical count. During 2020, the company discovered that the correct inventory value at the end of 2019 should have been 400,000 because it made a counting error. Upon discovery of this error in 2020, what correcting journal entry will Manny make? Ignore income taxes.
You are auditing Crown Corporation for the year ended 2022. Its reported net income for the year 2021 and 2022 were P 3,000,000 and P 4,000,000, respectively. During your audit, the following errors were revealed: 1. The inventory at the end of 2022 and 2023 were P 20,000 understated and P 18,000 overstated, respectively. 2. Recalculating the depreciation charges for 2023, you found out it was short by P 4,000. 3. The 15,000 insurance premium for three years was recorded using the income statement approach on January 1, 2021. No expense amount was extracted from the balance at the end 2021 and 2022. 4. An equipment was sold on December 31, 2022 for P 32.000. Its related cost was P 200,000 with zero carrying value on date of sale. The sale transaction was recorded on January 10, 2023. QUESTIONS: 1. What is the correct net income for the year 2022? 2. What is the correct net income for the year 2023?
DRS Corporation changed the way it depreciates its computers from the sum-of-the-year’s-digits method to thestraight-line method beginning January 1, 2018. DRS also changed its estimated residual value used in computingdepreciation for its office building. At the end of 2018, DRS changed the specific subsidiaries constituting thegroup of companies for which its consolidated financial statements are prepared.Required:1. For each accounting change DRS undertook, indicate the type of change and how DRS should report thechange. Be specific.2. Why should companies disclose changes in accounting principles?
Shannon Company began operations on January 1, 2020. The financial statement contained the following errors: YEAR 2020- Ending inventory 160,000 understated; Depreciation expense 60,000 understated; Insurance expense 100,000 overstated; Prepaid insurance 100,000 understated; YEAR 2021 - Ending inventory 150,000 overstated; Insurance expense 100,000 understated. On December 31, 2021, fully depreciation machinery was sold for P110,000 cash but the sale was not reported until 2022. No corrections have been made for any of the errors. Ignoring income tax, what amount should be reported as net effect of the errors on Net Income for 2020?
Shannon Company began operations on January 1, 2020. The financial statement contained the following errors: YEAR 2020- Ending inventory 160,000 understated; Depreciation expense 60,000 understated; Insurance expense 100,000 overstated; Prepaid insurance 100,000 understated; YEAR 2021 - Ending inventory 150,000 overstated; Insurance expense 100,000 understated. On December 31, 2021, fully depreciation machinery was sold for P110,000 cash but the sale was not reported until 2022. No corrections have been made for any of the errors. Ignoring income tax, what amount should be reported as net effect of the errors on Retained Earnings on December 31, 2021? a. 100,000 over b. 100,000 under c. 200,000 over d. 200,000 under
Shannon Company began operations on January 1, 2020. The financial statement contained the following errors: YEAR 2020- Ending inventory 160,000 understated; Depreciation expense 60,000 understated; Insurance expense 100,000 overstated; Prepaid insurance 100,000 understated; YEAR 2021 - Ending inventory 150,000 overstated; Insurance expense 100,000 understated. On December 31, 2021, fully depreciation machinery was sold for P110,000 cash but the sale was not reported until 2022. No corrections have been made for any of the errors. Ignoring income tax, what amount should be reported as net effect of the errors on Working Capital on December 31, 2021?
Shannon Company began operations on January 1, 2020. The financial statement contained the following errors: YEAR 2020- Ending inventory 160,000 understated; Depreciation expense 60,000 understated; Insurance expense 100,000 overstated; Prepaid insurance 100,000 understated; YEAR 2021 - Ending inventory 150,000 overstated; Insurance expense 100,000 understated. On December 31, 2021, fully depreciation machinery was sold for P110,000 cash but the sale was not reported until 2022. No corrections have been made for any of the errors. Ignoring income tax, what amount should be reported as net effect of the errors on Retained Earnings on December 31, 2021?