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Effects of errors on financial statements For a recent year, the balance sheet for The Campbell Soup Company (CPB) includes accrued expenses of $604 million. The income before taxes for Campbell for the year was $849 million. a. Assume the adjusting entry for $604 million of accrued expenses was not recorded at the end of the year. By how much would income before taxes have been misstated? b. What is the percentage of the misstatement in (a) to the reported income of $849 million? Round to one decimal place.
Financial And Managerial Accounting
Solutions
Financial And Managerial Accounting
Effects of errors on financial statements
For a recent year, the balance sheet for The Campbell Soup Company (CPB) includes accrued expenses of $604 million. The income before taxes for Campbell for the year was $849 million.
a. Assume the adjusting entry for $604 million of accrued expenses was not recorded at the end of the year. By how much would income before taxes have been misstated?
b. What is the percentage of the misstatement in (a) to the reported income of $849 million? Round to one decimal place.
a.
Determine the amount by which the incomes before taxes have been misstated.
Explanation of Solution
Adjusting entries:
Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).
Accrued expenses:
Accrued expenses refer to the expenses that are incurred but cash is not yet paid.
The effects on the net income, if the adjusting entry for accrued expense is not recorded are as follows:
| Adjustment Not Recorded | |||
b.
Determine the percentage of the misstatement, if the reported income of Company C is $849 million.
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