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Intermediate Accounting: Reporting...

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

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

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

Chapter 22, Problem 16E, Dudley Company failed to recognize the following accruals. It also recorded the prepaid expenses and

The reported pretax income was $20,000 in 2018, $25,000 in 2019, and $23,000 in 2020.

Required:

  1. 1. Compute the correct pretax income for 2018, 2019, and 2020.
  2. 2. Prepare the journal entries necessary in 2020 if the errors are discovered at the end of that year. Ignore income taxes.
  3. 3. Prepare the journal entries necessary in 2021 if the errors are discovered at the end of that year. Ignore income taxes.

1.

To determine

Calculate the correct pretax income for 2018, 2019, and 2020, after including the omissions.

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.

Calculate the correct pretax income for the years 2018, 2019, and 2020.

Details201820192020
Reported pretax income$20,000$25,000$23,000
Prepaid expenses:   
 Add: Expense paid in the year5009001,100
 Deduct: Expense incurred in the year (500)(900)
Accrued expenses:   

2.

To determine

Journalize the correction of errors at the end of 2020 for the prior period errors.

3.

To determine

Journalize the correction of errors at the end of 2021 for the prior period errors.

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