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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Effects of errors on financial statements

For a recent year, the balance sheet for The Campbell Soup Company includes accrued expenses of $598 million. The income before taxes for The Campbell Soup Company for the year was $1,106 million.

a. Assume the adjusting entry for $598 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 $1,106 million? Round to one decimal place.

(a)

To determine

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.

Explanation

The effects on the net income, if the adjusting entry for accrued expense is not recorded are as follows:

Adjustment Not Recorded Income Statement
Revenue Expenses Net income
Accrued expense Understated by $598 million Overstate...

(b)

To determine

The percentage of the misstatement, if the reported income of Company C is $1,106 million.

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