AccountingThe before-tax income for EnvironmentalistsCorp. for 2021 was $295,000; for 2020, it was$320.000. You have spent considerable timereviewing the accounts and have noted thefollowing:Sales for 2020 included $72,000 that had beenreceived in cash during 202O, but for which therelated products were delivered in 202Performance was considered complete ondelivery.Ending inventory on December 31, 2021, wasunderstated by $6,500. The December 31, 2020ending inventory was overstated by $3,300.In January 2021,Environmentalists reviewedits recycling machinery.The machine waspurchased in January 2018for $250,000 with aresidual value of $30,000and a useful life of 10years. Environmentalistshas determined theremaining useful life is now5 years with no residualvalue.Ordinary repairs to equipment had been chargedin error to the Equipment account during2021,2020 and 2019. In total, repairs in the amountof $7,500 in 2021, $8,400 in 2020 and $9,000 in2019 were charged in this way. The company usesthe declining balance method and applies a rateof 10% in determining its depreciation charges.Assume that Environmentalists Corp. appliesASPE.Required:i. Prepare a schedule showing thecalculation of corrected income before taxfor 2021 and 2020.ii. Prepare the journal entries that thecompany's accountant would prepare in2021, assuming the errors are discoveredwhile the 2020 books are still open. Ignoreincome tax effects.iii. Prepare the Statement of RetainedEarnings for December 31, 2021, Thecompany reported Retained Earnings of$300,000 at the beginning of 2019.

W.N.1) If closing inventory is overstated, the profit or income is also overstated and if it is…

i. Prepare a schedule showing the calculation of corrected income before tax for 2021 and 2020. ii. Prepare the journal entries that the company's accountant would prepare in 2021, assuming the errors are discovered while the 2020 books are still open. Ignore income tax effects. iii. Prepare the Statement of Retained Earnings for December 31, 2021, The company reported Retained Earnings of $300,000 at the beginning of 2019.

i. Prepare a schedule showing the calculation of corrected income before tax for 2021 and 2020. ii. Prepare the journal entries that the company's accountant would prepare in 2021, assuming the errors are discovered while the 2020 books are still open. Ignore income tax effects. iii. Prepare the Statement of Retained Earnings for December 31, 2021, The company reported Retained Earnings of $300,000 at the beginning of 2019.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 8E: In 2020, Frost Company, which began operations in 2018, decided to change from LIFO to FIFO because...

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Fava Company began operations in 2018 and used the LIFO inventory method for both financial reporting and income taxes. At the beginning of 2019, the anticipated cost trends in the industry had changed, so that it adopted the FIFO method for both financial reporting and income taxes. Fava reported revenues of 300,000 and 270,000 in 2019 and 2018, respectively. Fava reported expenses (excluding income tax expense) of 125,000 and 120,000 in 2019 and 2018, which included cost of goods sold of 55,000 and 45,000, respectively. An analysis indicates that the FIFO cost of goods sold would have been lower by 8,000 in 2018. The tax rate is 21%. Fava has a simple capital structure with 15,000 shares of common stock outstanding during 2018 and 2019. It paid no dividends in either year. Required: 1. Prepare the journal entry to reflect the change. 2. At the end of 2019, prepare the comparative income statements for 2019 and 2018. Notes to the financial statements are not necessary. 3. At the end of 2019, prepare the comparative retained earnings statements for 2019 and 2018.
Refer to RE22-2. Assume Heller Company had sales revenue of 510,000 in 2019 and 650,000 in 2020. Prepare Hellers partial income statements (through gross profit) for 2019 and 2020. RE22-2 Heller Company began operations in 2019 and used the LIFO method to compute its 300,000 cost of goods sold for that year. At the beginning of 2020, Heller changed to the FIFO method. Heller determined that its cost of goods sold under FIFO would have been 250,000 in 2019. For 2020, Hellers cost of goods sold under FIFO was 360,000, while it would have been 410,000 under LIFO. Heller is subject to a 21% income tax rate. Compute the cumulative effect of the retrospective adjustment on prior years income (net of taxes) that Heller would report on its retained earnings statement for 2020.
In 2020, Frost Company, which began operations in 2018, decided to change from LIFO to FIFO because management believed that FIFO belter represented the flow of their inventory. Management prepared the following analysis showing the effect of this change: Frost reported net income of 2,500,000, 2,400,000, and 2,100,000 in 2018, 2019, and 2020, respectively. The tax rate is 21%. Required: 1. Prepare the journal entry necessary to record the change. 2. What amount of net income would Frost report in 2018, 2019, and 2020? 3. If Frosts employees received a bonus of 10% of income before deducting the bonus and income taxes in 2018 and 2019, what would be the effect on net income for 2018, 2019, and 2020?
You are looking into the accounts of a company that has presented using LIFO for inventory. You see in the notes the LIFO Reserve in 2019 and 2020 were 160,000 and 240,000 respectively. The company pays tax at 30% in both years. Show the relevant adjustments you would have to make to the Balance Sheet and income statement to convert the company to a FIFO basis. Describe the effect that this conversion would have on net profit margin, gross profit margin, debt to equity, inventory turnover and current ratio in 2020. Another company has written down some inventory. Explain why a company would need to write down inventory and the effects this would have on the company accounts.
Data taken from the records of XYZ Co. revealed the following for 2020: Inventory - January 1 :P2,000,000; Net purchases : P7,000,000; Inventory - December 31 : P2,800,000; Sales Returns and allowances: P750,000. Gross profit based on net sales is 20%. How much is the gross sales for 2020? A. P7,000,000 B. P7,750,000 C. P8,500,000 D. P9,125,000 E. answer not given
Marine Corporation collected $120,000 during 2020. Of this amount, $2,000 was still unearned as of December 31, 2020. The company reported sales of $128,000. Marine purchased inventory during 2020 of $48,000, and the inventory account balance was the same at the beginning and the end of the year. What was the company's gross profit for 2020?
Avila Corp. reported 2020 net income of $20,000. However, the ending inventory in 2019 had been understated by $2,000 and 2020's ending inventory had been overstated by $3,000. Avila's correct net income for 2020 was a. $21,000 b. $15,000 c. $19,000 d. $25,000
Jan Cahilig Traders started operating in 2020. For the year ended 2020, the sales, purchases, and closing inventory are P500,000, P300,000 and P40,000. What is the gross profit for the year ended 2020?
Gee Hee Traders started operating in 2021. For the year ended 2021, the sales, purchases, and closing inventory are P500,000, P200,000, and P10,000 respectively. What is the amount of cost of goods sold for the year ended 2021? Your answer
What is Seaside Surfing's COGS if the company had inventory of $20,000 at the beginning of 2019, had net inventory purchases of $45,000 during the year, and had $7,000 inventory left at the end of 2019? During the same period sales discounts were $46,700, sales returns were $24,300 and allowance for doubtful accounts was $13,250.
For 2020, cost of goods available for sale for Crane Corporation was $5600000. The gross profit rate on sales was 20%. Sales for the year were $5100000. What was the amount of the ending inventory? $1120000. $1520000. $0. $1020000.
Assume the following are for Bubba Co. for 2019: Sales $980,000; Merchandise inventory January 1, 2019 $55,000; Merchandise inventory December31, 2019 $60,000; Purchases $650,000; Operating expenses $100,000. What would the gross profit for Bubba Co. for 2019 be?