How would this be recorded on an Income Statement. During 2019, Natural State's CFO noticed that bad debt expense in the 2018 income statement was $50,000 too low as a result of an accounting error made by a Natural State employee in the prior year
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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. The reported pretax income was 20,000 in 2018, 25,000 in 2019, and 23,000 in 2020. Required: 1. Compute the correct pretax income for 2018, 2019, and 2020. 2. Prepare the journal entries necessary in 2020 if the errors are discovered at the end of that year. Ignore income taxes. 3. Prepare the journal entries necessary in 2021 if the errors are discovered at the end of that year. Ignore income taxes.It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019 (which will be issued in March 2020). You read in the newspaper that Travis Corporation, a major customer of Davenport, is in financial difficulty. Included in Davenports accounts receivable is 50,000 (a material amount) owed to it by Travis. You approach Jim Davenport, president, with this information and suggest that a reduction of accounts receivable and recognition of a loss for 2019 might be appropriate. Jim replies, Why should we make an adjustment? Ted Travis, the president of Travis Corporation, is a friend of mine; he will find a way to pay us, one way or another. Furthermore, this occurred in 2020, so lets wait and see what happens; we can always make an adjustment later this year. Our 2019 income and year-end working capital are not that high; our creditors and shareholders wouldnt stand for lower amounts than they already are. Required: From financial reporting and ethical perspectives, prepare a response to Jim Davenport regarding this issue.Shannon Corporation began operations on January 1, 2019. Financial statements for the years ended December 31, 2019 and 2020, contained the following errors: In addition, on December 31, 2020, fully depreciated machinery was sold for 10,800 cash, but the sale was not recorded until 2021. There were no other errors during 2019 or 2020, and no corrections have been made for any of the errors. Refer to the information for Shannon Corporation above. Ignoring income taxes, what is the total effect of the errors on the amount of working capital (current assets minus current liabilities) at December 31, 2020? a. working capital overstated by 4,200 b. working capital understated by 5,800 c. working capital understated by 6,000 d. working capital understated by 9,800
- In December of 2019, a company received consulting services of $100,000. No entry was recorded for these service in 2019. The invoice for the services was received in January 2020 and recorded by debiting consulting expense and crediting accounts payable. This error was discovered in 2020 and was determined to be a material error. What is the impact of the error on the net income of 2019 and 2020? Provide the proper correcting journal enntry assuming a 30% tax rate.Penn Co.'s allowance for uncollectible accounts was $200,000 at the end of 2019 and $180,000 at the end of 2018. For the year ended December 31, 2019, Penn reported bad debt expense of $40,000 in its income statement. What amount did Penn debit to the appropriate account in 2019 to write off actual bad debts?Since it started its operations in 2019, Valdo Co. carried no allowance for doubtful accounts. Uncollectible receivables were expensed as written off and recoveries were credited to income as collected. On March 1, 2023(after the financial statements were issued), management recognized that Valdo accounting policy with respect to doubtful accounts was not correct, and determined that an allowance for doubtful accounts was necessary. Data for the five years follow: 2019 2020 2021 2022 2023 Credit sales 2,100,000 1,850,000 2,050,000 2,000,000 2,000,000 Accounts written off 20,000 40,000 130,000 22,000 113,000 The year-end balance of accounts receivable are as follows: December 31, 2022 - P1,000,000 December 31, 2023 P1,200,000 Recoveries 15,000 20,000 5,000 20,000 40,000 Bad debts are provided for as a percentage of sales. a) The percentage to be used to compute for the allowance for bad debts on December 31, 2023 would be b) How much would be the doubtful accounts expense for 2023? c)…
- In 2021, Winslow International, Inc.’s controller discovered that ending inventories for 2019 and 2020 were overstated by $200,000 and $500,000, respectively. Determine the effect of the errors on retained earnings at January 1, 2021. (Ignore income taxes.)In 2021, Winslow International, Inc.’s controller discovered that ending inventories for 2019 and 2020 were overstated by $200,000 and $500,000, respectively.Determine the effect of the errors on retained earnings at January 1, 2021. (Ignore income taxes.)(Answer with either overstated or understated, along with the amount)Sunland Services Ltd. follows ASPE and had earned accounting income before taxes of $520,000 for the year ended December 31, 2023. During 2023, Sunland paid $77,000 for meals and entertainment expenses. In 2020, Sunland's tax accountant made a mistake when preparing the company's income tax return. In 2023, Sunland paid $10,500 in penalties related to this error. These penalties were not deductible for tax purposes. Sunland owned a warehouse building for which it had no current use, so the company chose to use the building as a rental property. At the beginning of 2023, Sunland rented the building to Trung Inc. for two years at $64,500 per year. Trung paid the entire two years' rent in advance. Sunland used the straight-line depreciation method for accounting purposes and recorded depreciation expense of $286,200. For tax purposes, Sunland claimed the maximum capital cost allowance of $431,400. This asset had been purchased at the beginning of the year for $3,004,400. In 2023, Sunland…
- Sunland Services Ltd. follows ASPE and had earned accounting income before taxes of $520,000 for the year ended December 31, 2023. During 2023, Sunland paid $77,000 for meals and entertainment expenses. In 2020, Sunland's tax accountant made a mistake when preparing the company's income tax return. In 2023, Sunland paid $10,500 in penalties related to this error. These penalties were not deductible for tax purposes. Sunland owned a warehouse building for which it had no current use, so the company chose to use the building as a rental property. At the beginning of 2023, Sunland rented the building to Trung Inc. for two years at $64,500 per year. Trung paid the entire two years' rent in advance. Sunland used the straight-line depreciation method for accounting purposes and recorded depreciation expense of $286,200. For tax purposes, Sunland claimed the maximum capital cost allowance of $431,400. This asset had been purchased at the beginning of the year for $3,004,400. In 2023, Sunland…In 2021, Winslow International, Inc.’s controller discovered that ending inventories for 2019 and 2020 were overstated by $290,000 and $590,000, respectively.Determine the effect of the errors on retained earnings at January 1, 2021. (Ignore income taxes.)Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company’s fiscal year-end. The 2020 balance sheet disclosed the following: Current assets: Receivables, net of allowance for uncollectible accounts of $39,000 $ 477,000 During 2021, credit sales were $1,795,000, cash collections from customers $1,875,000, and $44,000 in accounts receivable were written off. In addition, $3,900 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following: Percentage of Year-End Percent Age Group Receivables in Group Uncollectible 0−60 days 70 % 5 % 61−90 days 20 15 91−120 days 5 20 Over 120 days 5 40 Required:1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previously written off.2. Prepare the year-end…
