Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
expand_more
expand_more
format_list_bulleted
Question
Chapter 5, Problem 47PA
1.
To determine
Prepare a corrected multistep income statement of Company B for the year ended September 30, 2010.
2.
To determine
Write a memo explaining each error that is found to be incorrect and indicate the correct accounting treatment that should be taken.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
So, owner of a trading company engaged your services as auditor. There is a discrepancy between the company’s income and the sales volume. The owner suspects that the staff is committing theft. You are to determine whether or not this is true. Your investigation revealed the following:
The physical taken on December 31, 2018 under your observation showed that cost was P26,500. The inventory on January 1, 2018 showed cost of P39,000.
The accounts receivable as of January 1, 2018 were P13,500. During 2018, accounts receivable written off amounted to P1,000. Accounts receivable as of December 31, 2018 were P37,500.
Outstanding purchase invoices amounted to P30,000 at the end of 2018. At the beginning of 2018, they were P37,500.
Receipts from customers during 2018 amounted to P300,000.
Disbursement to merchandise creditors amounted to P200,000.
The average gross profit rate was 40% of net sales.
Required:
Total Sales
Total Purchases
Inventory Shortage
Company A sells floral centerpieces, but they aren't
very good at accounting. They have a year-end of
December 31st. In 2019, they recorded their regular
transactions, but then realized the following:
They were counting inventory at 12/31/18 and the
inventory clerk forgot to include in inventory $40,000
of flowers that were in transit to a customer (shipped
FOB destination a few days before). Analyze the error
assuming that it is not discovered at 12/31/18. Use
the standard grid, but also include a line for retained
earnings.
They are impressed, but are also bummed out. It
appears that in March 2019, their clerk forgot to
record the freight in of 10,000 for items that were
purchased in March. The error was not discovered
until they paid the freight bill in 2020. Analyze using
the standard grid, but analyze retained earnings as
well.
If Company A just lets both errors play out without
correcting them, what is the amount of the error they
would have in their 2019 cost of goods sold…
The following misstatements are included in the accounting records of Westgate Manufacturing Company.1. Each month, a fraudulent receiving report is submitted to accounting by anemployee in the receiving department. A few days later, he sends Westgate an invoicefor the quantity of goods ordered from a small company he owns and operates inthe evening. A check is prepared, and the amount is paid when the receiving reportand the vendor’s invoice are matched by the accounts payable clerk.2. Telephone expense (account 2112) was unintentionally charged to repairs andmaintenance (account 2121).3. The accounts payable clerk prepares a monthly check to Story Supply Company forthe amount of an invoice owed and submits the unsigned check to the treasurer forpayment along with related supporting documents that have already been approved.When she receives the signed check from the treasurer, she records it as a debit toaccounts payable and deposits the check in a personal bank account for a…
Chapter 5 Solutions
Financial Accounting
Ch. 5 - In each separate situation, identify which company...Ch. 5 - Prob. 2YTCh. 5 - Prob. 3YTCh. 5 - Prob. 4YTCh. 5 - Prob. 5YTCh. 5 - Jaynes Jewelry Store purchased three diamond and...Ch. 5 - Prob. 7YTCh. 5 - Prob. 8YTCh. 5 - Prob. 9YTCh. 5 - Prob. 1Q
Ch. 5 - What is the difference between freight-in and...Ch. 5 - What is the difference between a purchase return...Ch. 5 - What is a purchase discount? What is the effect of...Ch. 5 - Prob. 5QCh. 5 - Prob. 6QCh. 5 - Prob. 7QCh. 5 - What is the difference between a periodic and...Ch. 5 - What is inventory shrinkage?Ch. 5 - What is the difference between the physical flow...Ch. 5 - What are the common cost flow methods for...Ch. 5 - If inventory costs are rising, which method (FIFO,...Ch. 5 - If inventory costs are rising, which method (FIFO,...Ch. 5 - Does LIFO or FIFO give the bestmost currentbalance...Ch. 5 - How do taxes affect the choice between LIFO and...Ch. 5 - Does the periodic or perpetual choice affect the...Ch. 5 - What is the lower-of-cost-or-market rule and why...Ch. 5 - What does the gross profit percentage measure? How...Ch. 5 - What does the inventory turnover ratio measure?...Ch. 5 - What are some of the risks associated with...Ch. 5 - Prob. 1MCQCh. 5 - Prob. 2MCQCh. 5 - Prob. 3MCQCh. 5 - Prob. 4MCQCh. 5 - Prob. 5MCQCh. 5 - Prob. 6MCQCh. 5 - Prob. 7MCQCh. 5 - Prob. 8MCQCh. 5 - Prob. 9MCQCh. 5 - Prob. 10MCQCh. 5 - Prob. 1SEACh. 5 - Prob. 2SEACh. 5 - Prob. 3SEACh. 5 - Prob. 4SEACh. 5 - Prob. 5SEACh. 5 - Prob. 6SEACh. 5 - Prob. 7SEACh. 5 - Prob. 8SEACh. 5 - The following information pertains to item #007SS...Ch. 5 - Prob. 10SEACh. 5 - Prob. 11SEBCh. 5 - Prob. 12SEBCh. 5 - Prob. 13SEBCh. 5 - Prob. 14SEBCh. 5 - Prob. 15SEBCh. 5 - Prob. 16SEBCh. 5 - Prob. 17SEBCh. 5 - Given the following information, calculate the...Ch. 5 - Prob. 19SEBCh. 5 - Prob. 20SEBCh. 5 - Prob. 21EACh. 5 - Prob. 22EACh. 5 - Prob. 23EACh. 5 - Prob. 24EACh. 5 - August 11Purchased four units at 400 each August...Ch. 5 - Prob. 26EACh. 5 - Prob. 27EACh. 5 - Prob. 28EACh. 5 - Prob. 29EACh. 5 - Prob. 30EACh. 5 - Given the following information, calculate the...Ch. 5 - Prob. 32EBCh. 5 - Prob. 33EBCh. 5 - Prob. 34EBCh. 5 - Prob. 35EBCh. 5 - Prob. 36EBCh. 5 - Prob. 37EBCh. 5 - Assume Radio Tech uses a perpetual inventory...Ch. 5 - Prob. 39EBCh. 5 - Prob. 40EBCh. 5 - Prob. 41EBCh. 5 - Prob. 42EBCh. 5 - Prob. 43PACh. 5 - Prob. 44PACh. 5 - Prob. 45PACh. 5 - The following transactions occurred during July...Ch. 5 - Prob. 47PACh. 5 - Prob. 48PACh. 5 - Calculate cost of goods sold and ending inventory;...Ch. 5 - Prob. 50PACh. 5 - Green Bay Cheese Company is considering changing...Ch. 5 - The following information is for Leos Solar...Ch. 5 - Prob. 53PACh. 5 - Prob. 54PBCh. 5 - Prob. 55PBCh. 5 - Prob. 56PBCh. 5 - Prob. 57PBCh. 5 - Prob. 58PBCh. 5 - Prob. 59PBCh. 5 - Calculate cost of goods sold and ending inventory;...Ch. 5 - Prob. 61PBCh. 5 - Castana Company is considering changing inventory...Ch. 5 - The following information is for Falling Numbers...Ch. 5 - Prob. 64PBCh. 5 - Prob. 1FSACh. 5 - Prob. 2FSACh. 5 - Prob. 3FSACh. 5 - Prob. 1CTPCh. 5 - Prob. 2CTP
Knowledge Booster
Similar questions
- Suppose that an audit of Prime Sports Gear encountered the following two errors: a. Inventory totaling 4,500 should have been written off as worthless at the end of the year. Year-end inventory should be only 195,600. Net income is reduced to 117,110. b. Checks totaling 20,000 for some of the salaries payable at year-end had in fact been written and mailed out on December 31, 2013. Thus, both the cash account and the salaries payable account are overstated at year-end. Correct both errors on the worksheet. Save your completed file as CASHFLOW4. Print the worksheet when done. What impact did each of these adjustments have on cash flow for 2013?arrow_forwardCompany E is a retailer of commercial and residential plumbing products. Steven Owens, the company’s staff accountant, is in the process of making year-end adjusting entries for uncollectible accounts receivable. Recently, the company has experienced an increase in accounts that have become uncollectible. As a result, Owens believes that the company should increase the percentage used for estimating doubtful accounts from 2% to 5% of credit sales. This change will significantly increase bad debt expense, resulting in a drop in earnings for the first time ever for the company. The company president, Thomas Williams, is under considerable pressure to meet the earnings goals for the fiscal year. He suggests to Steven that this is “not the proper time” to change the estimate. He instructs Steven to keep the estimate at 2%. Steven is confident that 2% is way too low, but he follows Thomas' instructions. Evaluate the decision to use the lower percentage to improve earnings. Are Thomas and…arrow_forwardFirst Bank is considering giving Ivanhoe Company a loan. First, however, it decides that it would be a good idea to have further discussions with Ivanhoe's accountant. One area of particular concern is the inventory account, which has a December 31 balance of $241,660. Discussions with the accountant reveal the following: 1. 2. 4. 3. On December 31, Flint Company had $26,230 of goods held on consignment for Ivanhoe. The goods were not included in Ivanhoe's ending inventory balance. The physical count of the inventory did not include goods that cost $81,700 that were shipped to Ivanhoe, FOB shipping point, on December 27 and were still in transit at year end. Determine the correct inventory amount at December 31. Ivanhoe sold goods that cost $30,100 to Pharoah Company, FOB destination, on December 28. The goods are not expected to arrive at their destination in India until January 12. The goods were not included in the physical inventory because they were not in the warehouse. The…arrow_forward
- California Cannery began in 2008 with a debit balance in Accounts Receivable $150,000 and a credit balance in Allowance for Doubtful Accounts for 7,500 for the year. During the year California Cannery sold 1,300,000 of product and collected 1,350,000 from customers. In addition, $4,000 of Accounts Receivable balance was written off as uncollectable during the year. Management uses the allowance method to account for bad debts and believes that ultimately 5% of the year-end balance in Accounts Receivable will not be collected. How much bad debt expenses will be recorded in 2008?arrow_forwardThe following misstatements are included in the accounting records of Westgate Manufacturing Company. Each month, a fraudulent receiving report is submitted to accounting by an employee in the receiving department. A few days later, he sends Westgate an invoice for the quantity of goods ordered from a small company he owns and operates in the evening. A check is prepared, and the amount is paid when the receiving report and the vendor’s invoice are matched by the accounts payable clerk. Telephone expense (account 2112) was unintentionally charged to repairs and maintenance (account 2121). Required: For each misstatement, identify the transaction-related audit objective that was not met. For each misstatement, state a control that should have prevented it from occurring on a continuing basis. For each misstatement, state a substantive audit procedure that could uncover it.arrow_forwardBud Lighting Co. is a retailer of commercial and residential lighting products. Gowen Geter, the company’s chief accountant, is in the process of making year-end adjusting entries for uncollectible accounts receivable. In recent years, the company has experienced an increase in accounts that have become uncollectible. As a result, Gowen believes that the company should increase the percentage used for estimating doubtful accounts from 2% to 4% of credit sales. This change will significantly increase bad debt expense, resulting in a drop in earnings for the first time in company history. The company president, Tim Burr, is under considerable pressure to meet earnings goals. He suggests that this is “not the right time” to change the estimate. He instructs Gowen to keep the estimate at 2%. Gowen is confident that 2% is too low, but he follows Tim’s instructions. Evaluate the decision to use the lower percentage to improve earnings. How would raising the percentage change the financial…arrow_forward
- Bud Lighting Co. is a retailer of commercial and residential lighting products. Gowen Geter, the company’s chief accountant, is in the process of making year-end adjusting entries for uncollectible accounts receivable. In recent years, the company has experienced an increase in accounts that have become uncollectible. As a result, Gowen believes that the company should increase the percentage used for estimating doubtful accounts from 2% to 4% of credit sales. This change will significantly increase bad debt expense, resulting in a drop in earnings for the first time in company history. The company president, Tim Burr, is under considerable pressure to meet earnings goals. He suggests that this is “not the right time” to change the estimate. He instructs Gowen to keep the estimate at 2%. Gowen is confident that 2% is too low, but he follows Tim’s instructions. Evaluate the decision to use the lower percentage to improve earnings. Are Tim and Gowen acting in an ethical manner?arrow_forwardSteering Corporation reported the following selected information in its general ledger at December 31: All sales were on account. Some accounts receivable were collected. One account was written off; there were no subsequent recoveries. At the end of the year, uncollectible accounts were estimated to total $1,980. Using your knowledge of receivables transactions, determine the missing amounts. (Hint: You may not be able to solve the below items in alphabetical order. In addition, you may find it helpful to reconstruct the journal entries.) Beg. bal. End, bal. (a) U (f) Accounts Receivable 17,800 Allowance for Doubtful Accounts Beg. bal. 900 Unadj. bal. End. bal. Sales Bad Debts Expense (b) (d) (e) 54,900 1,800 900 77,200arrow_forwardAs the auditor for Company A, you discover that a material sale ($500,000 sale; cost of goods of $300,000) was made to a customer this year. Because of poor internal accounting controls, the sale was never recorded. Your client makes a management decision not to bill the customer because such a long time has passed since the shipment was made. You determine, to the best of your ability, that the sale was not fraudulent. Using the framework for ethical decision making, determine whether the auditor should require either a recording or a disclosure of the sales transaction. Instructions: Using the framework for ethical decision making, determine whether the auditor should require either a recording or a disclosure of the sales transaction. Please make sure to use at least 100 words in your response. Once you give your response, please respond to at least two of your peers using at least 50 words in your responses. Remember to follow the netiquette guidelines found in the course…arrow_forward
- The owner of a trading company engaged your services as auditor. There is a discrepancy between the companys income and the sales volume. The owner suspects that the staff is committing theft. You are to determine whether or not this is true. Your investigation revealed the following: 1. Physical inventory, taken December 31, 2019 under your observation, showed that cost was P26,500 and market value, P25,000. The inventory of January 1, 2019 showed cost of P39,000 and market value of P37,500. It is the firms practice to value inventory at lower of cost or market. Any loss between cost and market value is included in Other Expenses. 2. The average gross profit rate was 40% of net sales. 3. The Accounts Receivable as of January 1, 2019 were P13,500. During 2019, Accounts Receivable written off during the year amounted to P1,000. Accounts Receivable as of December 31, 2019 were P37,500. 4. Outstanding purchase invoices amounted to P50,000 at the end of 2019. At the beginning of 2019 they…arrow_forwardI. Street Bank is considering giving Fallen Company a loan. Before doing so, it decides that further discussions with Fallen's accountant may be desirable. One area of particular concern is the inventory account, which has a year-end balance of $375,000. Discussions with the accountant reveal the following. 1. Fallen sold goods costing $55,000 to White Company FOB shipping point on December 28. The goods are not expected to reach White until January 12. The goods were not included in the physical inventory because they were not in the warehouse. 2. The physical count of the inventory did not include goods costing $95,000 that were shipped to Fallen FOB destination on December 27 and were still in transit at year-end. 3. Fallen received goods costing $15,000 on January 2. The goods were shipped FOB shipping point on December 26 by Lynch Co. The goods were not included in the physical count. 4. Fallen sold goods costing $41,000 to Benet of Canada FOB destination on December 30. The goods…arrow_forwardAtlantic Company reported the following net income: Year 2021 - P 4,000,000, and year 2022 - P 5,000,000. During your audit for the year 2022, the following errors were revealed: A cash collection of P 100,000 was received from a customer on December 28, 2022 but not recorded until January 4, 2023. Received a supplier's invoice on December 29, 2022 for P 160,000 worth of merchandise also received on the same date but no entry was made until January 5, 2023. Inventories on December 31, 2021 and 2022 wee correctly stated. Depreciation for the year 2021 was understated by P 90,000. The office supplies purchased on November 10, 2022 amounting to P 20,000 was charged to purchases account. The company's accounting policy is to expense office supplies as expensed when incurred. Sales invoice dated December 30, 2022 amounting to P 300,000 was recorded only on January 3, 2023. What is the corrected net income for the year 2022? a. 3,910,000b. 5,140,000c. 4,540,000d. 5,460,000arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning