chapter 22 homework

ACCOUNTING CHANGEPREPARATION OF INCOME STATEMENT UNDER LIFO AND FIFOINCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31

LIFOyear 2010 2011 2012sales revenue $ 4,000 $ 4,000 $ 4,000 cost of goods sold $ 800 $ 1,000 $ 1,130 operating expenses $ 1,000 $ 1,000 $ 1,000 net income $ 2,200 $ 2,000 $ 1,870

INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31FIFO

year 2010 2011 2012sales revenue $ 4,000 $ 4,000 $ 4,000 cost of goods sold $ 820 $ 940 $ 1,100 operating expenses $ 1,000 $ 1,000 $ 1,000 net income $ 2,180 $ 2,060 $ 1,900

INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31year 2012 2011sales revenue $ 4,000 $ 4,000 cost of goods sold $ 1,100 $ 940 operating expenses $ 1,000 $ 1,000 net income $ 1,900 $ 2,060

RETAINED EARNINGS STATEMENTS AFTER RETROSPECTIVE APPLICATIONyear 2012 2011retained earning, January 1, as reported $ 2,200 less:

$ 20 retained earnings, Janaury 1, as adjusted $ 4,240 $ 2,180 add net income $ 1,900 $ 2,060 retained earnings, December 31 $ 6,140 $ 4,240

PREPARATION OF INCOME STATEMENT UNDER LIFO AND FIFOINCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31

LIFOyear 2010 2011 2012sales revenuecost of goods soldoperating expensesnet income $ - $ - $ -

INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31FIFO

year 2010 2011 2012

RETROSPECTIVE APPLICATION OF ACCOUNTING CHANGE FROM LIFO TO FIFO

adjustment for cumulative effect of applying new account method (FIFO) in 2010

sales revenuecost of goods soldoperating expensesnet income $ - $ - $ -

INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31year 2012 2011sales revenuecost of goods soldoperating expensesnet income $ - $ -

RETAINED EARNINGS STATEMENTS AFTER RETROSPECTIVE APPLICATIONyear 2012 2011retained earning, January 1, as reportedless:

$ - retained earnings, Janaury 1, as adjusted $ - $ - add net income $ - $ - retained earnings, December 31 $ - $ -

RETROSPECTIVE APPLICATION OF ACCOUNTING CHANGE FROM LIFO TO FIFO

adjustment for cumulative effect of applying new account method (FIFO) in 2010

F64

the difference between beginning cost of goods sold for the diferrent methods used

ACCOUNTING CHANGECOMPUTATION OF ADJUSTED RETAINED EARNINGS

year 2010retained earnings, January 1, as reported under FIFO $ 160,000 less: cumulative effect of change in accounting principle to average cost

$ (13,000)sum of prior years net income under new method 157000less: sum of prior years net income under previous method 170000

retained earnings, January 1, as adjusted $ 147,000







COMPUTATION OF ADJUSTED RETAINED EARNINGSyear 2010

retained earnings, January 1, as reported under FIFOless: cumulative effect of change in accounting principle to average cost

$ - sum of prior years net income under new methodless: sum of prior years net income under previous method

retained earnings, January 1, as adjusted $ -

year 2013retained earnings, January 1, as reported under FIFOless: cumulative effect of change in accounting principle to average cost



year 2014retained earnings, January 1, as reported under FIFOless: cumulative effect of change in accounting principle to average cost



ACCOUNTING CHANGES - DEPRECIATION

COMPUTATION OF DEPRECIATION TO DATE USING THE SUM OF YEARS DIGITS METHOD

sum of years digits depreciation base depreciation2009 5 15 $ 450,000 $ 150,000 2010 4 15 $ 450,000 $ 120,000 2011 3 15 $ 450,000 $ 90,000

accumulated depreciation $ 360,000

cost of equipment $ 465,000 depreciation to date $ (360,000)book value (december 31, 2011) $ 105,000

book value $ 105,000 less: salvage value $ 15,000 dpreciable cost $ 90,000

depreciable cost $ 90,000 divided by: remaining service life 2depreciation for 2012 $ 45,000

journal entrydepreciation expense $ 45,000

accumulated depreciation equipment $ 45,000

COMPUTATION OF DEPRECIATION TO DATE USING THE STRAIGHT LINE METHODcost $ 780,000 less: salvage value $ - divided by: service life 30multipled by: years to date 3depreciation to date $ 78,000

cost of equipment $ 780,000 less: depreciation to date $ (78,000)book value (december 31, 2011) $ 702,000

book value $ 702,000 less: salvage value $ - dpreciable cost $ 702,000

depreciable cost $ 702,000 divided by: remaining service life 37

service life 40

remaining service life

less: years to date 3

37

depreciation for 2012 $ 18,973

journal entrydepreciation expense $ 18,973

accumulated depreciation $ 18,973

COMPUTATION OF DEPRECIATION TO DATE USING THE SUM OF YEARS DIGITS METHOD

sum of years digits salvage value cost of equipment2009 5 152010 4 15 $ - $ - 2011 3 15 $ - $ -

accumulated depreciation

cost of equipment $ - less: accumulated depreciation $ - book value (december 31, 2011) $ -

book value $ - less: current salvage valuedpreciable cost $ -

depreciable cost $ - divided by: current service life

0less: prior yearsdepreciation for 2012 #DIV/0!

journal entrydepreciation expense #DIV/0!

accumulated depreciation equipment #DIV/0!

COMPUTATION OF DEPRECIATION TO DATE USING THE STRAIGHT LINE METHODcostless: salvage valuedivided by: service lifemultipled by: years to datedepreciation to date #DIV/0!

cost of equipment $ - less: depreciation to date #DIV/0!book value (december 31, 2011) #DIV/0!

remaining service life

book value #DIV/0!less: current salvage valuedpreciable cost #DIV/0!

depreciable cost #DIV/0!divided by: remaining service life 0

current service lifeless: years to date 0

depreciation for 2012 #DIV/0!

journal entrydepreciation expense #DIV/0!

accumulated depreciation #DIV/0!

depreciation bdepreciation $ -

$ - $ - $ - $ -

$ -

ERROR AND CHANGE IN ESTIMATE - DEPRECIATIONCOMPUTATION OF SUM OF YEARS DIGITScost of equipment $ 440,000 estimated service life 10sum of years digits 55

COMPUTATION OF REMAINING SERVICE LIFE IN 2010prior years 1remaining service life 9

JOURNAL ENTRY TO RECORD OMITTED DEPRECIATION EXPENSE FOR 201031-Dec-12

retained earnings ($440,000 X 9/55) $ 72,000 $ 72,000

COMPUTATION OF BOOK VALUE AT JANUARY 1,2012cost of equipment $ 440,000 less: depreciation prior to 2012

$ 216,000

2009 $ 80,000 2010 $ 72,000 2011 $ 64,000

book value at January 1, 2012 $ 224,000

COMPUTATION OF DEPRECIATION EXPENSE FOR 2012 USING THE STRAIGHT-LINE METHODbook value $ 224,000 less: salvage value $ - depreciation base $ 224,000 divided by: remaining service life

7prior years 3depreciation expense $ 32,000

JOURNAL ENTRY TO RECORD DEPRECIATION EXPENSE FOR 2012depreciation expense $ 32,000

$ 32,000

COMPUTATION OF SUM OF YEARS DIGITScost of equipmentestimated service lifesum of years digits 0

COMPUTATION OF REMAINING SERVICE LIFE IN YEAR OF ERRORprior yearsremaining service life 0

accumulated depreciation-equipment (to correct for the omission of depreciation expense in 2010)

accumulated depreciation-equipment (to record depreciation expense for 2012)

JOURNAL ENTRY TO RECORD OMITTED DEPRECIATION EXPENSE FOR 201031-Dec-12

retained earnings ($440,000 X 9/55) #DIV/0!#DIV/0!

COMPUTATION OF BOOK VALUE AT JANUARY 1,2012cost of equipment $ - less: depreciation prior to 2012

#DIV/0!

2009 $ - 2010 #DIV/0!2011 #DIV/0!

book value at January 1, 2012 #DIV/0!

COMPUTATION OF DEPRECIATION EXPENSE FOR 2012 USING THE STRAIGHT-LINE METHODbook value #DIV/0!less: current salvage valuedepreciation base #DIV/0!divided by: remaining service life

0prior yearsdepreciation expense #DIV/0!

JOURNAL ENTRY TO RECORD DEPRECIATION EXPENSE FOR 2012depreciation expense #DIV/0!

#DIV/0!

accumulated depreciation-equipment (to correct for the omission of depreciation expense in 2010)

accumulated depreciation-equipment (to record depreciation expense for 2012)

ERROR CORRECTION ENTRY

PART1COMPUTATION OF DEPRECIATION CHARGED IN ERRORcost of equipment $ 510,000 less: salvage value $ - depreciation base $ 510,000 divided by: service life 5depreciation expense $ 102,000

COMPUTATION OF CORRECT AMOUNT FOR DEPRECIATIONcost of equipment $ 510,000 less: salvage value $ 51,000 depreciation base $ 459,000 divided by: service life 5depreciation expense $ 91,800

COMPUTATION OF ADJUSTMENT NEEDED TO CORRECT ERROR FOR PRIOR YEARS# of prior years 2depreciation taken $ 204,000 depreciation (correction) $ 183,600 adjusment amount $ 20,400

COMPUTATION OF ADJUSTMENT NEEDED TO CORRECT ERROR FOR CURRENT YEARdepreciation taken $ 102,000 depreciation (correction) $ 91,800 adjusment amount $ 10,200

JOURNAL ENTRY TO RECORD ERROR CORRECTIONaccumulated depreciation-machinery $ 30,600

depreciation expense $ 10,200 retained earnings $ 20,400

PART 2

retained earnings $ 45,000 salaries and wages expense $ 45,000

PART 4COMPUTATION OF AMORTIZATION EXPENSEcost of asset $ 50,000 divided by: service life 20amortization expense $ 2,500

COMPUTATION OF ADJUSTMENT NEEDED TO CORRECT ERROR FOR PRIOR YEARS# of prior years 2adjusment amount $ 5,000

COMPUTATION OF ADJUSTMENT NEEDED TO CORRECT ERROR FOR CURRENT YEARadjusment amount $ 2,500

JOURNAL ENTRY TO RECORD ERROR CORRECTION (FAILURE TO ACCRUE SALES SALARIES of $45,000)

JOURNAL ENTRY TO RECORD ERROR CORRECTIONamortization expense 2012 $ 2,500 retained earnings (expense for 2010 & 2011) $ 5,000

copyright $ 7,500

PART 5

loss due to market decline of inventories (or cost of goods sold) $ 87,000 retained earnings $ 87,000

PART1COMPUTATION OF DEPRECIATION CHARGED IN ERRORcost of equipmentless: salvage valuedepreciation base $ - divided by: service lifedepreciation expense #DIV/0!

COMPUTATION OF CORRECT AMOUNT FOR DEPRECIATIONcost of equipmentless: salvage valuedepreciation base $ - divided by: service lifedepreciation expense #DIV/0!

COMPUTATION OF ADJUSTMENT NEEDED TO CORRECT ERROR FOR PRIOR YEARS# of prior yearsdepreciation taken #DIV/0!depreciation (correction) #DIV/0!adjustment amount #DIV/0!

COMPUTATION OF ADJUSTMENT NEEDED TO CORRECT ERROR FOR CURRENT YEARdepreciation taken #DIV/0!depreciation (correction) #DIV/0!adjustment amount #DIV/0!

JOURNAL ENTRY TO RECORD ERROR CORRECTIONaccumulated depreciation-machinery #DIV/0!

depreciation expense #DIV/0!retained earnings #DIV/0!

PART 2

retained earningssalaries and wages expense

JOURNAL ENTRY TO RECORD ERROR CORRECTION (BYPASSED THE INCOME STATEMENT IN ERROR, $87,000)

JOURNAL ENTRY TO RECORD ERROR CORRECTION (FAILURE TO ACCRUE SALES SALARIES of $45,000)

PART 4COMPUTATION OF AMORTIZATION EXPENSEcost of assetdivided by: service lifeamortization expense #DIV/0!

COMPUTATION OF ADJUSTMENT NEEDED TO CORRECT ERROR FOR PRIOR YEARS# of prior yearsadjusment amount #DIV/0!

COMPUTATION OF ADJUSTMENT NEEDED TO CORRECT ERROR FOR CURRENT YEARadjusment amount #DIV/0!

JOURNAL ENTRY TO RECORD ERROR CORRECTIONamortization expense 2012 #DIV/0!retained earnings (expense for 2010 & 2011) #DIV/0!

copyright #DIV/0!

PART 5

loss due to market decline of inventories (or cost of goods sold)retained earnings


ERROR ANALYSISPREPARATION OF A SCHEDULE SHOWING THE DETERMINATION OF CORRECTED INCOME BEFORE TAXES

PART 1

SALES ERRONEOUSLY INCLUDED IN PRIOR YEAR INCOMEcorrections:

sales erroneously included in 2012 income

PART 2

UNDERSTATEMENT OF PRIOR YEAR ENDING INVENTORYcorrections:

understatement of 2012 ending inventory

PART 3

COMPUTATION OF BOND INTEREST EXPENSE

stated interest effective interest difference2012 $ 240,000 $ 15,000 7% $ 16,800 $ (1,800)2013 $ 241,800 $ 15,000 7% $ 16,926 $ (1,926)

ADJUSTMENT TO BOND INTEREST EXPENSEcorrections:

adjustment to bond interest expense

PART 4

REPAIRS ERRONEOUSLY CHARGED TO THE EQUIPMENT ACCOUNTcorrections:

repairs erroneously charged to the equipment account

COMPUTATION OF ERRONEOUS DEPRECIATION TAKEN IN PRIOR YEARS

depreciation rate additions depreciation2012 10% $ 8,000 $ 800 $ 800 2013 10% $ 9,400 $ 940 $ 1,740


depreciation recored on improperly captialized repairs

PART 1-4

PREPARATION OF A SCHEDULE SHOWING THE DETERMINATION OF CORRECTED INCOME BEFORE TAXES

income before taxescorrections:

book value of bonds

effective interest rate

total excess depreciation

sales erroneously included in 2012 incomeunderstatement of 2012 ending inventoryadjustment to bond interest expenserepairs erroneously charged to the equipment accountdepreciation recored on improperly captialized repairs

corrected income before ta

PART 1

SALES ERRONEOUSLY INCLUDED IN PRIOR YEAR INCOME

corrections:sales erroneously included in 2012 income

PART 2

UNDERSTATEMENT OF PRIOR YEAR ENDING INVENTORY

corrections:understatement of 2012 ending inventory

PART 3

COMPUTATION OF BOND INTEREST EXPENSE

stated interest effective interest difference2012 $ - $ - 2013 $ - $ - 0% $ - $ -

ADJUSTMENT TO BOND INTEREST EXPENSEcorrections:

adjustment to bond interest expense

PART 4


repairs erroneously charged to the equipment account

COMPUTATION OF ERRONEOUS DEPRECIATION TAKEN IN PRIOR YEARS

depreciation rate additions depreciation2012 $ - $ - 2013 0% $ - $ -


depreciation recored on improperly captialized repairs

book value of bonds

effective interest rate

total excess depreciation

PART 1-4


income before taxescorrections:

sales erroneously included in 2012 incomeunderstatement of 2012 ending inventoryadjustment to bond interest expenserepairs erroneously charged to the equipment accountdepreciation recored on improperly captialized repairs

corrected income before ta


2012 2013 $ (38,200) $ 38,200

2012 2013 $ 8,640 $ (8,640)

2012 2013 $ (1,800) $ (1,926)

2012 2013 $ (8,000) $ (9,400)

2012 2013 $ 800 $ 1,740

PREPARATION OF A SCHEDULE SHOWING THE DETERMINATION OF CORRECTED INCOME BEFORE TAXES2012 2013

$ 101,000 $ 77,400

$ (38,200) $ 38,200 $ 8,640 $ (8,640) $ (1,800) $ (1,926) $ (8,000) $ (9,400) $ 800 $ 1,740 $ 62,440 $ 97,374

2012 2013

2012 2013

2012 2013 $ - $ -

2012 2013

2012 2013 $ - $ -

PREPARATION OF A SCHEDULE SHOWING THE DETERMINATION OF CORRECTED INCOME BEFORE TAXES2012 2013

$ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -

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