You have been engaged to review the financial statements of Pharoah Inc. In the course of your investigation you find a number of irregularities during the current year. 1. Insurance for a 6-month period purchased on October 1 of this year was charged to prepaid insurance in the amount of $4,200. 2. 3. Year-end estimate of bonuses totaled $52,000 and was not recorded because the payment would not be made until next year. Warranty expense averages 5% on current year sales of $4,190,000. Warranty expense is automatically debited for 5% of each sale. During the current year, the company also paid $188,550 in warranty related claims. The bookkeeper thought that the payments were an expense and debited warranty expense.

You have been engaged to review the financial statements of Pharoah Inc. In the course of your investigation you find a number of irregularities during the current year. 1. Insurance for a 6-month period purchased on October 1 of this year was charged to prepaid insurance in the amount of $4,200. 2. 3. Year-end estimate of bonuses totaled $52,000 and was not recorded because the payment would not be made until next year. Warranty expense averages 5% on current year sales of $4,190,000. Warranty expense is automatically debited for 5% of each sale. During the current year, the company also paid $188,550 in warranty related claims. The bookkeeper thought that the payments were an expense and debited warranty expense.

Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

Publisher:Hoffman

Chapter18: Accounting Periods And Methods

Section: Chapter Questions

Problem 50P

See similar textbooks

Similar questions

Errors in Financial Statements At the end of the current year, Jodi Corporation's controller discovers the following items of information: Salaries are paid every Friday for a 5-day work week. The normal weekly payroll is $40,000. The year-end falls on a Tuesday this year. The company has a $20,000, 9-month, 12% (annual rate) note payable outstanding at the end of the year. The note was issued on October 1; the interest is due when the note is paid. Examining the Rent Expense account, the controller finds that it includes a $4,800 advance payment for 3 months' rent. The payment was made on November 1. The storeroom contains $500 of office supplies. At the beginning of the year, there were no office supplies. During a year, the company purchased $3,500 of office supplies which were debited to the Office Supplies account. The company received a large order in May with a $13,000 advance payment. The advance payment was credited to Unearned Revenue. In November, the order was delivered to…
Stingers Inc. provides audited financial statements to its creditors and management receives a bonus partially based on revenues for the year An order for $61,500 was received from one of its regular customer on December 29, for products on hand. This order was shipped f.o.b. shipping point on January 9, 2021. The company made the following entry for 2020: Accounts Receivable 61,500 Sales Revenue 61,500 INSTRUCTIONS - DETERMINE HOW REVENUE SHOULD BE RECORDED UNDER EACH ALTERNATIVE a. Assume the company follows ASPE, provide a GAAP supported-case specific analysis. b. Assume the company follows IFRS, provide a GAAP supported-case specific analysis.
Danza Inc. reported income of $440,000 for the year ended June 30, 20X8. However, the records show that at year end, the following items had not been recorded: On May 1, 20X8, Danza received a $12,000 advance for a six-month job and credited Revenue for $12,000. Interest on a $12,000 note payable bearing a 10% interest rate is paid quarterly. The last payment was made at the end of May 20X8. Danza’s payroll is 14 salaried employees, each earning $900 a week for a 5-day workweek. Friday is payday. June 30 was a Tuesday. Prepare the adjusting entries necessary for the year ended June 30, 20X8. What is Danza’s net income for 20X8?
During the audit of a manufacturing firm, you are performing audit data analytics based on the payroll file. You are examining the reasonability of deductions as a percentage of gross wages for the 12 months of the year and the results were summarized in the following scatter chart. Please interpret the visualization. Discuss any notable items you identified, potential causes, and further steps you would take. • Deductions as a % of gross wages 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Months
During the 2021 annual audit of ABC Company, you identified that management did not accrue / record the last 5 days of work for all salaried employees. The last five days of work in 2021 are to be paid during the next fiscal year in January 2022. Below are the facts related to the identified misstatement. ABC Company employees earned $68,000 in salaries during the last 5 days of the fiscal year ending December 31, 2021. FICA Social Security taxes are 6.2% of the first $142,800 of an employee’s wages and FICA Medicare taxes are 1.45% of gross pay. ABC Company had no employees whose salaries were more than $142,800 by the end of December 2021. $8,160 in employee federal income tax was withheld, along with $730 in union dues. SUTA taxes are 2.9% and FUTA taxes are 0.8% of the first $7,000 paid to each employee; only $44,000 of the weekly salaries were subject to FUTA and SUTA. Prepare the adjusting journal entries management will need to make to correct the entire identified…
Choose the correct. March of the current year, Mooney Company estimated its year-end executive bonuses to be $800,000. The executive bonus paid in the previous year was $950,000. What amount of bonus expense, if any, should Mooney recognize in determining net income for the first quarter of the current calendar year?a. –0–b. $200,000c. $237,500d. $800,000
Assume you work as an assistant to the chief financial officer (CFO) of Fashions First, Inc. TheCFO reminds you that the fiscal year-end is only two weeks away and that he is looking to you toensure the company stays in compliance with its loan covenant to maintain a debt-to-assets ratio ofno more than 75 percent. A review of the general ledger indicates that assets total $690,000 and liabilities are $570,000. Your company has an excess of Cash ($300,000) and an equally large balancein Accounts Payable ($270,000), although none of its Accounts Payable are due until next month.Required:1. Determine whether the company is currently in compliance with its loan covenant.2. Assuming the level of assets and liabilities remains unchanged until the last day of the fiscalyear, evaluate whether Fashions First should pay down $210,000 of its Accounts Payable onthe last day of the year, before the Accounts Payable become due
SQU Company paid the weekly payroll on January 2 by debiting Wages Expense for $27,000. The accountant preparing the payroll entry overlooked the fact that Wages Expense of $16,200 had been accrued at year end on December 31. The correcting entry is
The treasurer of Landowska Co. has heard that conservatismis a doctrine that is followed in accounting and,therefore, proposes that several policies be followed thatare conservative in nature. State your opinion with respectto each of the policies listed.(a) The company gives a 2-year warranty to its customerson all products sold. The estimated warranty costs incurred from this year’s sales should be entered asan expense this year instead of an expense in the periodin the future when the warranty is made good.(b) When sales are made on account, there is always uncertaintyabout whether the accounts are collectible.Therefore, the treasurer recommends recording thesale when the cash is received from the customers.(c) A personal liability lawsuit is pending against thecompany. The treasurer believes there is an evenchance that the company will lose the suit and haveto pay damages of $200,000 to $300,000. The treasurerrecommends that a loss be recorded and a liabilitycreated in the amount…
Following are the five events of DDT CORPORATION: a. On December 31, purchased a machinery at a price of $ 6,00,000 and signed a note payable due in six months with interest of 9 percent. b. On December 31, estimated that warranty work costing $ 5,00,000 will need to be performed in coming months on those products which were sold in this year with a 12-month warranty. c. On December 31, pay checks totaling $ 289,000 were issued to employees .As these cheques were issued after banking hours on December 31, no cash will be disbursed from payroll bank account until early in January next year. The amounts withheld from employee’ pay and payroll taxes on the employer, $ 51000 and $ 27000 respectively, were remitted to tax authorities next month. d. On November 1, borrowed $ 900000 from a bank signing a 90 day note payable for $ 918000, with interest included in the face amount. e. On November 3, signed a contract for the purchase of 30000 barrels of oil per month in the coming year at a…
The following transactions apply to Walnut Enterprises for Year 1, its first year of operations: Received $40,500 cash from the issue of a short-term note with a 6 percent interest rate and a one-year maturity. The note was made on April 1, Year 1. Received $117,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 5 percent. Paid $70,500 cash for other operating expenses during the year. Paid the sales tax due on $97,000 of the service revenue for the year. Sales tax on the balance of the revenue is not due until Year 2. Recognized the accrued interest at December 31, Year 1. The following transactions apply to Walnut Enterprises for Year 2: Paid the balance of the sales tax due for Year 1. Received $142,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 5 percent. Repaid the principal of the note and applicable interest on April 1, Year 2. Paid $83,500 of…
Reviewing payroll records indicates that one-fifth of employee salaries that are due to be paid on the first payday in January, totaling $15,000, are actually for hours worked in December. There was no previous balance in the Salaries Payable account at that time. Based on the information provided, make the December 31 adjusting journal entry to bring the balances to correct.