1)
Introduction:
The cumulative effect on net income and
2)
Introduction: Depreciation connects the cost of using a tangible item to the benefit received throughout its useful life. The accumulated depreciation account contains the amount charged for depreciation on the balance sheet.
To Prepare: The Correcting entry if the error discovered in 2021
3)
Introduction:
To prepare: The correcting entry for the period ending 2023
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INTERMEDIATE ACCOUNTING
- Sheridan Inc. reports the following pretax income (loss) for both book and tax purposes. Pretax Year Income (Loss) $120,000 2023 2024 89,000 2025 (87,000) 2026 120,000 Tax Rate 20% 20% 25% 25% The tax rates listed were all enacted by the beginning of 2023.arrow_forwardRequired: Indicate the effects of the following on the accounting equation. (Enter decreases to account categories as negative amounts and do not round your intermediate calculations.) 1. The adjustment for depreciation at the end of 2019. 2. The two expenditures during 2020 for (a) the major overhaul of the equipment and (b) repairs and maintenance.arrow_forwardDuring 2020, Wagner Converting discovers that a computational error was made on its 2019 financial statements. The error resulted in a $150,000 understatement of 2019 net income. Upon discovering the error, Wagner's accountant promptly adds $150,000 to the company's 2020 beginning Retained Earnings balance. What impact will this have on Wagner's Retained Earnings and why will it have that impact? O It will correctly raise Retained Earnings because the error should affect the Retained Earnings account, not an income account. O It will incorrectly raise Retained Earnings because an error that impacts income must always be corrected in an income statement account. O It will correctly raise Retained Earnings; however the error should first be recorded to Income Summary which is then posted to Retained Earnings. O It will incorrectly raise Retained Earnings because such errors must be recorded to the year in which they were made, not the year in which they were discovered.arrow_forward
- Abrat Company failed to accrue an allowance for doubtful accounts of 13,500 in 2019. Upon discovery of this error in 2020 prior to making its estimate of doubtful accounts, what correcting journal entry should Abrat make? Ignore income taxes.arrow_forwardElegant Linens uses the balance sheet aging method to account for uncollectible debt on receivables. The following is the past-due category information for outstanding receivable debt for 2019. To manage earnings more favorably, Elegant Linens considers changing the past-due categories as follows. A. Complete each table by filling in the blanks. B. Determine the difference between total uncollectible. C. Complete the following 2019 comparative income statements for 2019, showing net income changes as a result of the changes to the balance sheet aging method categories. D. Describe the categories change effect on net income and accounts receivable.arrow_forwardNoren Company uses the balance sheet aging method to account for uncollectible debt on receivables. The following is the past-due category information for outstanding receivable debt for 2019. To manage earnings more favorably, Noren Company considers changing the past-due categories as follows. A. Complete each table by filling in the blanks. B. Determine the difference between totals uncollectible. C. Complete the following 2019 comparative income statements for 2019, showing net income changes as a result of the changes to the balance sheet aging method categories. D. Describe the categories change effect on net income and accounts receivable.arrow_forward
- Dudley Company failed to recognize the following accruals. It also recorded the prepaid expenses and unearned revenues as expenses and revenues, respectively', in the following year when paid or collected. The reported pretax income was 20,000 in 2018, 25,000 in 2019, and 23,000 in 2020. Required: 1. Compute the correct pretax income for 2018, 2019, and 2020. 2. Prepare the journal entries necessary in 2020 if the errors are discovered at the end of that year. Ignore income taxes. 3. Prepare the journal entries necessary in 2021 if the errors are discovered at the end of that year. Ignore income taxes.arrow_forwardAt the end of 2019, Framber Company received 8,000 as a prepayment for renting a building to a tenant during 2020. The company erroneously recorded the transaction by debiting Cash and crediting Rent Revenue in 2019 instead of 2020. Upon discovery of this error in 2020, what correcting journal entry will Framber make? Ignore income taxes.arrow_forwardSkysong Corp. sold an investment on an installment basis. The total gain of $74,400 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment-sales method for tax purposes. The installment period is 3 years; one-third of the sale price is collected in the period of sale. The tax rate was 40% in 2020, and 20% in 2021 and 2022. The 20% tax rate was not enacted in law until 2021. The accounting and tax data for the 3 years is shown below. Financial Accounting Tax Return 2020 (40% tax rate). Income before temporary difference $86,800 $86,800 Temporary difference 74,400 24,800 Income $161,200 $111,600 2021 (20% tax rate) Income before temporary difference $86,800 $86,800 Temporary difference 24,800 Income $86,800 $111,600 2022 (20% tax rate). Income before temporary difference $86,800 $86,800 Temporary difference 24,800 Income $86,800 $111,600 Calculate cumulative temporary differences for years 2020-2022. (Negative amounts using…arrow_forward
- During 2021, a $50,000 loss on the sale of machinery was incorrectly recorded as a factory equipment repair. The error was not discovered until the books were closed and the financial statements were issued for 2022. What adjustment is necessary? Group of answer choices No adjustment is necessary to books or financial statements. Make no entry, but if $50,000 is a material amount, retrospectively adjust the 2021 comparative income statement. Since only income statement accounts are affected, make no entry to the books but recall the 2021 income statement. Record a correction to the books for 2021 and 2022 and recall prior financial statementsarrow_forwardState the effect the following situation would have on the amount of annual net income reported for 2019. No adjustment was made for the revenue earned previously recorded as unearned revenue for USD 6,000 as of 2019 December 31. Group of answer choices Net income is overstated, liabilities are understated Net income is understated, assets are overstated Net income is overstated, assets are overstated Net income is understated, liabilities are overstatedarrow_forwardyour client, failed to record accrued salaries expense of P 50,000 as of December 31, 2022. Based on the foregoing, answer the following questions: Question 1: Which of the following accounts is(are) understated by P 50,000 at the end of year 2022 as a result of the error? Question 2: Which of the following accounts is(are) overstated by P 50,000 at the end of year 2023 as a result of the error? Question 3: What would be the adjusting entry if the error is discovered in year 2022? Question 4: What would be the adjusting entry if the error is discovered in year 2023? Question 5: What would be the adjusting entry if the error is discovered in year 2024?arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College