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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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At the beginning of 2020, Tanham Company discovered the following errors made in the preceding 2 years:

Chapter 22, Problem 10P, At the beginning of 2020, Tanham Company discovered the following errors made in the preceding 2

Reported net income was $27,000 in 2018 and $35,000 in 2019. The allowance for doubtful accounts had a zero balance at the beginning of 2018. No accounts were written off during 2018 or 2019. Ignore income taxes.

Required:

  1. 1. What is the correct net income for 2018 and 2019?
  2. 2. Prepare the adjusting journal entry in 2020 to correct the errors.

1.

To determine

Compute the correct net income for the years 2018 and 2019, after the errors are corrected.

Explanation

Errors: The comparability and consistency of the financial statements decreases when a company records arithmetic mistakes, or errors. Such errors do require adjustments to make the financial information more reliable, and more relevant.

Compute the correct net income for the years 2018 and 2019, after the errors are corrected.

Details20182019
Reported net income$27,000$35,000
Less: Overstated ending inventory(5,000)(2,000)
Add: Overstated ending inventory 5,000
Less: Incurred wages payable(700)(800)

2.

To determine

Prepare the adjusting entry for correction of errors in 2020.

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