Concept explainers
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
Errors:
An error is a mistake committed in the process of book-keeping or in accounting. In some cases, errors may occur but, they will not affect the totals of the
To determine: The effects on the balance sheet and income statement, if the initial errors are not corrected.
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Chapter 3 Solutions
FINANCIAL+MANG.-W/ACCESS PRACTICE SET
- When preparing the financial statements for the year ended October 31, accrued salaries owed to employees for October 30 and 31 were omitted. The accrued salaries were included in the first salary payment in November. Indicate which items will be erroneously stated, because of failure to correct the initial error, on (a) the income statement for the month of November and (b) the balance sheet as of November 30.arrow_forwardAt the beginning of 2020, Tanham Company discovered the following errors made in the preceding 2 years: 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. What is the correct net income for 2018 and 2019? 2. Prepare the adjusting journal entry in 2020 to correct the errors.arrow_forwardWhich of the following is not a counterbalancing error? Non-recognition of the unused portion of office supplies at year end. Omission of accrued interest expense at year end. Non-recording at year end of rent already earned but uncollected. Overstatement of depreciation for the current year.arrow_forward
- Exercise 6. Effect of omitting adjusting entry Accrued salaries of P3,100 owed to employees for December 30 and 31 are not considered in preparing the financial statements for the year ended December 31. Indicate which items will be erroneously stated, because of the error, on (a) the SCI for the year and (b) the SFP as of December 31. Also indicate whether the items in error will be overstated or understated. Exercise 7. Adjusting entries for prepaid and accrued taxes Millenium Financial Services was organized on April 1 of the current year. On April 2, Millenium prepaid P1,020 to the city for taxes (license fees) for the next 12 months and debited the prepaid taxes account. Millenium is also required to pay in January an annual tax (on property) for the previous calendar year. The estimated amount of the property tax for the current year (April 1 to December 31) is P10,210. (a) Journalize the two adjusting entries required to bring the accounts affected by the two taxes up to date as…arrow_forwardAt the beginning of the year, the balance in the Allowance for Doubtful Accounts is a credit of $559. During the year, $349 of previously written off accounts were reinstated and accounts totaling $837 are written off as uncollectible. The end-of-year balance (before adjustment) in the Allowance for Doubtful Accounts should be the one listed below. a.$349 b.$71 c.$559 d.$837arrow_forwardAt the beginning of the year, the balance in Allowance for Doubtful Accounts is a credit of $752. During the year, previously written off accounts of $141 are reinstated and accounts totaling $710 are written off as uncollectible. The end-of-year balance (before adjustment) in Allowance for Doubtful Accounts should be a.$183 b.$710 c.$141 d.$752arrow_forward
- Exercise 20-19 (Algo) Error correction; inventory error (LO20-6] During 2021, WMC Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts: 2019 understated by 2020 overstated by $134,000 178,000 WMC uses the periodic inventory system and the FIFO cost method. Required: 1-a. Determine the effect of 2019 errors on retained earnings at January 1, 2021, before any adjustments. (Ignore income taxes.) 1-b. Determine the effect of 2020 errors on retained earnings at January 1, 2021, before any adjustments. (Ignore income taxes.) 2. Prepare a journal entry to correct the error in 2021. 3. Will WMC account for the error (a) retrospectively or (b) prospectively?arrow_forwardIn order to generate interim financial reports that contain a reasonable portion of annual expenses, which of the following statements is true? a. an allocation of a portion of an annual bonus would be made as an interim adjustment b. any adjustments for inventory shrinkage would be deferred to year end c. the allowance for uncollectible accounts receivable will be revised at year end d. None of the above are truearrow_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
- At the beginning of the year, the balance in Allowance for Doubtful Accounts is a credit of $780. During the year, previously written off accounts of $119 are reinstated and accounts totaling $744 are written off as uncollectible. The end-of-year balance (before adjustment) in Allowance for Doubtful Accounts should be Oa. $780 © b. $744 O c. $119 Od. $155arrow_forwardHow should material seasonal variations in revenue be reflected in interim financial statements?a. The seasonal nature should be disclosed, and the interim report should be supplemented with a report on the 12-month period ended at the interim date for both the current and preceding years.b. The seasonal nature should be disclosed, but no attempt should be made to reflect the effect of past seasonality on financial statements.c. The seasonal nature should be reflected by providing pro forma financial statements for the current interim period.d. No attempt should be made to reflect seasonality in interim financial statements.arrow_forwardThe Effect of Ignoring Adjusting Entries on Net Income For each of the following independent situations, determine whether the effect of ignoring the required adjusting entry will result in an understatement (U), will result in an overstatement (O), or will have no effect (NE) on net income for the period.arrow_forward
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