Dyke Company's net incomes for the past three years are presented below (ignore taxes): 2019 2018 2017 $480,000 $450,000 $360,000 During the 2019 year-end audit, the following items come to your attention: Dyke bought equipment on January 1, 2016 for $490,000 with a $40,000 estimated salvage value and a six-year life. The company debited an expense account and credited cash on the purchase date for the entire cost of the asset. (Straight-line method) During 2019, Dyke changed from the straight-line method of depreciating its cement plant to the double-declining balance method. The following computations present depreciation on both bases: 2019 2018 2017 Straight-line 36,000 36,000 36,000 Double-declining 46,080 57,600 72,000 The net income for 2019 was computed using the double-declining balance method, on the January 1, 2019 book value, over the useful life remaining at that time. The depreciation recorded in 2019 was $72,000. Dyke, in reviewing its provision for uncollectibles during 2019, has determined that 1% is the appropriate amount of bad debt expense to be charged to operations. The company had used 1/2 of 1% as its rate in 2017 and 2018 when the expense had been $18,000 and $12,000, respectively. The company recorded bad debt expense under the new rate for 2019. The company would have recorded $6,000 less of bad debt expense on December 31, 2019 under the old rate. Instructions (a) Prepare in general journal form the entry necessary to correct the books for the transaction in part 1 of this problem, assuming that the books have not been closed for the current year. (b) Compute the net income to be reported each year 2017 through 2019. Ignore taxes. (c) Assume that the beginning retained earnings balance (unadjusted) for 2017 was $1,260,000. At what adjusted amount should this beginning retained earnings balance for 2017 be stated, assuming that comparative financial statements were prepared? (d) Assume that the beginning retained earnings balance (unadjusted) for 2019 is $1,800,000 and that non-comparative financial statements are prepared. At what adjusted amount should this beginning retained earnings balance be stated?

Dyke Company's net incomes for the past three years are presented below (ignore taxes): 2019 2018 2017 $480,000 $450,000 $360,000 During the 2019 year-end audit, the following items come to your attention: Dyke bought equipment on January 1, 2016 for $490,000 with a $40,000 estimated salvage value and a six-year life. The company debited an expense account and credited cash on the purchase date for the entire cost of the asset. (Straight-line method) During 2019, Dyke changed from the straight-line method of depreciating its cement plant to the double-declining balance method. The following computations present depreciation on both bases: 2019 2018 2017 Straight-line 36,000 36,000 36,000 Double-declining 46,080 57,600 72,000 The net income for 2019 was computed using the double-declining balance method, on the January 1, 2019 book value, over the useful life remaining at that time. The depreciation recorded in 2019 was $72,000. Dyke, in reviewing its provision for uncollectibles during 2019, has determined that 1% is the appropriate amount of bad debt expense to be charged to operations. The company had used 1/2 of 1% as its rate in 2017 and 2018 when the expense had been $18,000 and $12,000, respectively. The company recorded bad debt expense under the new rate for 2019. The company would have recorded $6,000 less of bad debt expense on December 31, 2019 under the old rate. Instructions (a) Prepare in general journal form the entry necessary to correct the books for the transaction in part 1 of this problem, assuming that the books have not been closed for the current year. (b) Compute the net income to be reported each year 2017 through 2019. Ignore taxes. (c) Assume that the beginning retained earnings balance (unadjusted) for 2017 was $1,260,000. At what adjusted amount should this beginning retained earnings balance for 2017 be stated, assuming that comparative financial statements were prepared? (d) Assume that the beginning retained earnings balance (unadjusted) for 2019 is $1,800,000 and that non-comparative financial statements are prepared. At what adjusted amount should this beginning retained earnings balance be stated?

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 8P: At the beginning of 2020, Holden Companys controller asked you to prepare correcting entries for the...

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Question

Dyke Company's net incomes for the past three years are presented below (ignore taxes):

2019 2018 2017

$480,000 $450,000 $360,000

During the 2019 year-end audit, the following items come to your attention:

Dyke bought equipment on January 1, 2016 for $490,000 with a $40,000 estimated salvage value and a six-year life. The company debited an expense account and credited cash on the purchase date for the entire cost of the asset. (Straight-line method)

During 2019, Dyke changed from the straight-line method of depreciating its cement plant to the double-declining balance method. The following computations present depreciation on both bases:

2019 2018 2017

Straight-line 36,000 36,000 36,000

Double-declining 46,080 57,600 72,000

The net income for 2019 was computed using the double-declining balance method, on the January 1, 2019 book value, over the useful life remaining at that time. The depreciation recorded in 2019 was $72,000.

Dyke, in reviewing its provision for uncollectibles during 2019, has determined that 1% is the appropriate amount of bad debt expense to be charged to operations. The company had used 1/2 of 1% as its rate in 2017 and 2018 when the expense had been $18,000 and $12,000, respectively. The company recorded bad debt expense under the new rate for 2019. The company would have recorded $6,000 less of bad debt expense on December 31, 2019 under the old rate.

Instructions

(a) Prepare in general journal form the entry necessary to correct the books for the transaction in part 1 of this problem, assuming that the books have not been closed for the current year.

(b) Compute the net income to be reported each year 2017 through 2019. Ignore taxes.

(c) Assume that the beginning retained earnings balance (unadjusted) for 2017 was $1,260,000. At what adjusted amount should this beginning retained earnings balance for 2017 be stated, assuming that comparative financial statements were prepared?

(d) Assume that the beginning retained earnings balance (unadjusted) for 2019 is $1,800,000 and that non-comparative financial statements are prepared. At what adjusted amount should this beginning retained earnings balance be stated?

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