Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Chapter 7, Problem 12EA
To determine
Compute the corrected operating income and its effect on the owner's equity.
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During 2016, WMC Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts: 2014 understated by $120,000 2015 overstated by 150,000 WMC uses the periodic inventory system and the FIFO cost method. Required: 1. Determine the effect of these errors on retained earnings at January 1, 2016, before any adjustments. Explain your answer. (Ignore income taxes.) 2. Prepare a journal entry to correct the error. 3. What other step(s) would be taken in connection with the error?
During 2016, WMC Corporation discovered that its ending inventories reported in its financial statements were misstated by the following material amounts: 2014 understated by $120,000 2015 overstated by 150,000 WMC uses a periodic inventory system and the FIFO cost method. Required: 1. Determine the effect of these errors on retained earnings at January 1, 2016, before any adjustments. Explain your answer. (Ignore income taxes.) 2. Prepare a journal entry to correct the errors. 3. What other step(s) would be taken in connection with the correction of the errors?
The income statement of TINKER CORP. shows a net income of P175,000 for the year
ended December 31, 2014. Adjustments were made for the following errors:
1
December 31, 2013, inventory overstated by P22,500.
2
December 31, 2014, inventory understated by P37,500.
3
A P10,000 customer's deposit received in December 2014, was credited to sales
in 2014. The goods were actually shipped in January 2015.
What is the unadjusted net income of Uruguay Co. for the year ended December 31,
2014?
А.
P234,000
C.
P170,000
P125,000
D.
P200,000
B.
Chapter 7 Solutions
Principles of Accounting
Ch. 7 - Prob. 1DQCh. 7 - Which of the following methods do not require a...Ch. 7 - Prob. 3DQCh. 7 - Prob. 4DQCh. 7 - Prob. 5DQCh. 7 - Prob. 6DQCh. 7 - Prob. 7DQCh. 7 - Prob. 1SECh. 7 - Assume the following data with regard to inventory...Ch. 7 - Prob. 3SE
Ch. 7 - Prob. 4SECh. 7 - Prob. 5SECh. 7 - Prob. 6SECh. 7 - Prob. 7SECh. 7 - Prob. 8SECh. 7 - Prob. 9SECh. 7 - Prob. 10SECh. 7 - Prob. 11SECh. 7 - Prob. 12SECh. 7 - Prob. 1EACh. 7 - Prob. 2EACh. 7 - Prob. 3EACh. 7 - Prob. 4EACh. 7 - Prob. 5EACh. 7 - Prob. 6EACh. 7 - During July 2014, Micanopy, Inc., sold 500 units...Ch. 7 - Prob. 8EACh. 7 - Prob. 9EACh. 7 - Prob. 10EACh. 7 - Prob. 11EACh. 7 - Prob. 12EACh. 7 - Midori Company merchandises a single product...Ch. 7 - The inventory of Wood4Fun and data on purchases...Ch. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6APCh. 7 - DiPaolos inventory, purchases, and sales for March...Ch. 7 - Prob. 8APCh. 7 - Prob. 9APCh. 7 - Zubac Company is a large retail furniture company...Ch. 7 - Prob. 1CCh. 7 - Prob. 2CCh. 7 - ExxonMobil Corporation had net income of 41.0...Ch. 7 - Prob. 4CCh. 7 - JCPenney, a large retail company with many stores,...
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- If Wakowski Companys 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?arrow_forwardTanke Company reported net income on the year-end financial statements of $850,200. However, errors in inventory were discovered after the reports were issued. If inventory was overstated by $21,000, how much net income did the company actually earn?arrow_forwardCompany Elmira reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 32,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?arrow_forward
- If Barcelona Companys ending inventory was actually $122,000, but the cost of consigned goods, with a cost value of $20,000 were accidentally included with the company assets, when making the year-end inventory adjustment, what would be the impact on the presentation of the balance sheet and income statement for the year that the error occurred, if any?arrow_forwardCompany Edgar reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 12,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?arrow_forwardThe Mike Tomlin Company has a calendar-year accounting period. The following error was discovered in April of 2019. This error would have affected the financial statements for 2017 and 2018. The ending balance in the inventory had been overstated at 12/31/2017 by $100,000. INSTRUCTIONS: Compute the effect this error had on the 2017 net income. Compute the effect, if any, each error had on the December 31, 2017 balance sheet items. Hint: be very careful about the time period!arrow_forward
- In 2016, Adonis Industries changed its method of valuing inventory from the average cost method to the FIFO method. At December 31, 2015, Adonis’s inventories were $47.6 million (average cost). Adonis’s records indicated that the inventories would have totaled $64 million at December 31, 2015, if determined on a FIFO basis. Ignoring income taxes, what journal entry will Adonis use to record the adjustment in 2016?arrow_forwardIn 2016, CPS Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2015, CPS’s inventories were $32 million (FIFO). CPS’s records indicated that the inventories would have totaled $23.8 million at December 31, 2015, if determined on an average cost basis. Required: 1. Prepare the journal entry to record the adjustment. (Ignore income taxes.) 2. Briefly describe other steps CPS should take to report the change.arrow_forward(Error Analysis) The before-tax income for Lonnie Holdiman Co. for 2017 was $101,000 and $77,400 for 2018. However, the accountant noted that the following errors had been made:1. Sales for 2017 included amounts of $38,200 which had been received in cash during 2017, but for which the related products were delivered in 2018. Title did not pass to the purchaser until 2018.2. The inventory on December 31, 2017, was understated by $8,640.3. The bookkeeper in recording interest expense for both 2017 and 2018 on bonds payable made the following entry on an annual basis.Interest Expense 15,000Cash 15,000The bonds have a face value of $250,000 and pay a stated interest rate of 6%. They were issued at a discount of $15,000 on January 1, 2017, to yield an effective-interest rate of 7%. (Assume that the effective-yield method should be used.)4. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2017 and 2018. Repairs in the amount of $8,500 in 2017 and…arrow_forward
- Sunflower Co. reported net income of P150,000, P180,000, and P220,000 for the years 2017, 2018, and 2019. However, the following errors were detected and were not yet corrected:· 2017 ending inventory is overstated by P6000.· 2018 beginning inventory is overstated by P6000.· A prepayment for rent for three years amounting to P9000 was expensed in full in 2018.How much is the correct 2019 net income?arrow_forward2. Tretorn Company began operations in 2018. During the first two years of operations, Tretorn made undiscovered errors in taking its year-end inventories that overstated 2018 ending inventory by P50,000 and understated 2019 ending inventory by P40,000. The combined effect of these errors on reported income for the year 2018, 2019 and 2020 respectively is choices: P50,000 understated; P90,000 overstated and P40,000 understated P50,000 overstated; P90,000 understated and P40,000 overstated P50,000 overstated; P40,000 understated and not affected P50,000 overstated; P90,000 understated and not affected 3. Golden Company maintains a markup of 60 percent based on cost. The company's selling and administrative expenses average 30 percent of sales. Annual sales were P1,440,000. Golden's operating profit for the year is choices: P144,000 P432,000 P108,000arrow_forwardDuring its second and third quarters of fiscal 2014, BlackBerry Limited wrote down its BB10smartphone inventory by approximately $1,700,000,000 because its cost exceeded its marketvalue. Show the effects of this adjustment on the accounting equation and show the journal entrythat the company would have made to record it.arrow_forward
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