FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Cromwell Company began operations on January 1, 20x1. Financial statements for the years ended December
31, 20x1 and 20x2 contained the following errors:
20x1 20x2
Ending inventory P320,000 understated P300,000 overstated
Depreciation expense 120,000 understated
Insurance expense 200,000 overstated 200,000 understated
Prepaid insurance 100,000 understated
The reported net income for 20x1 is P648,000 and P894,000 for 20x2. In addition, on December 31, 20x2, a
fully
no other errors during 20x1 and 20x2, and no corrections have been made for any of the errors. Ignore income
tax effects.
REQUIRED: Compute the total effects of errors and indicate whether overstated or understated.
5. Total effect of the errors on Elizabeth’s 20x1 net income _____________
6. Total effect of the errors on Elizabeth’s 20x2 net income _____________
7. Total effect of the errors on Elizabeth’s
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- If Wakowski Company's ending inventory was actually $86,000 but was adjusted at year end to a balance of $68,000 in error, what would be the impact on the presentation of the balance sheet and income statement for the year that the error occurred, if any? If no entry is required, select "None" and leave the amount boxes blank. Balance Sheet: Merchandise Inventory $4 Current Assets Total Assets Retained Earnings Income Statement: Cost of Goods Sold Gross Profit/Gross Margin Net Incomearrow_forwardOn December 31, 20x2, Grayson Inc. changed its inventory valuation method to FIFO from weighted-average. The change will result in an $800,000 increase in the beginning inventory at January 1, 20x2. Assume a 30% income tax rate. The cumulative effect of this accounting change on prior periods that will be reported as an adjustment to the beginning balance of retained earnings is O $560,000 O $800,000 0$-0- O $40,000arrow_forward18 A company understated its income and accounts receivable last year by $5,000 Which entry should be made in the current year to correct this material error? O Debit Sales for $5,000; Credit Retained Earnings for $5,000 O Debit Accounts Receivable for $5,000; Credit Retained Earnings for $5,000 Debit Retained Earnings for $5,000; Credit Accounts Receivable for $5,000 Debit Retained Earnings for $5,000; Debit Sales for $5,000arrow_forward
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