chapter19 - answer.doc

8/14/2019 Chapter19 - answer.doc

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19-1. Daffodil, Inc.

Adjusting Journal Entries

12.31.07

AJE (1) Share donation 60,000Treasury shares 35,000

Land 10,000

Building 15,000

(2) Au!ulated de"reiation # !ahinery 1,000

Loss on sale o$ !ahinery 2,000

%ahinery 3,000

&ost ' 5,000

Less A (20*) 1,000

+B ' -,000'roeeds 2,000

Loss ' 2,000

(3) (a) Au!ulated de"reiation # .uilding 300

/etained earnings 300

(.) atory o"erating e"enses 21,300

Au!ulated de"reiation # .uilding 6,300

Au!ulated de"reiation # !ahinery 15,000

Building ('315,000 2*)

%ahinery

5,000 10* ' 500

1-5,000 10* 1-,500

'15,000

(-) %erhandise inentory, 1243140 BS 15,000

%erhandise inentory, 1243140 7S 15,000

CHAPTER

19COMPREHENSIVE AUDIT OF

BALANCE SHEET AND INCOME

STATEMENT ACCOUNTS


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19-2 Solutions Manual to Accompany Applied Auditing, 2006 Edition

(5) Ad!inistratie e"enses 1,000

Allo8ane $or dou.t$ul aounts 1,000

(6) atory o"erating e"enses 3,000

9ne"ired insurane 3,000

() /etained earnings 2,500

Bond interest e"ense 2,500

9na!orti:ed .ond disount 5,000

(;) Sin


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ompre!ensi"e Audit o# $alance S!eet and %ncome Statement Accounts 19-3

19-1. Daffodil, Inc. (continued)Daffodil, Inc.

Working Trial Balance12.31.07

Trial Balance Adjustments Income Statement Balance Sheet Dr Cr Dr Cr Dr Cr Dr Cr

Cash P 64,000 P 64,000cco!n"s recei#a$le 200,000 200,000Pro#ision for do!$"f!l acco!n"s P 1,000 %&' 1,000 P 2,000In#en"ories, 12.31.06 223,000 P 223,000(ne)*ired ins!rance, 12.31.06 6,000 %6' 3,000 3,000+and 220,000 %1' 10,000 210,000B!ildings 330,000 %1' 1&,000 31&,000cc!!la"ed De*recia"ion - B!ildings 6,600 %3a' 300 %3$' 6,300 12,600achiner/ 14,000 %2' 3,000 14&,000cc!!la"ed De*recia"ion - achiner/ 1&,000 %2' 1,000 %3$' 1&,000 2,000inking f!nd asse"s 2&,000 %' 23,&00

%' 1,&00 &0,000(naor"ied $ond disco!n" 2&,000 %7' &,000 20,000Treas!r/ shares, ordinar/ 3&,000 %1' 3&,000 -cco!n"s *a/a$le ,000 ,000Bond in"eres" accr!ed 3,7&0 3,7&01s" or"gage, 6 5 Bonds 226,&00 %' 23,&00 2&0,000rdinar/ shares &00,000 &00,000Prei! on ordinar/ shares &0,000 &0,000hare dona"ion 60,000 %1' 60,000 -e"ained earnings, 12.31.06 74,1&0 %7' 2,&00 %3a' 300 71,&0ales 7&,000 P 7&,000P!rchases 23,&00 23,&00Pa/roll 16,000 16,0005ac"or/ o*era"ing e)*enses 121,&00 %3$' 21,300

%6' 3,000 14&,00dinis"ra"i#e e)*enses 3&,000 %&' 1,000 36,000

Bond in"eres" e)*ense 1&,000 %7' 2,&00 17,&00P1,00, 000 P1,00,000

+oss on sale of achiner/ %2' 2,000 2,000erchandise in#en"or/ 12.31.07 %4' 17&,000 %4' 17&,000 17&,000 17&,000inking f!nd incoe %' 1,&00 1,&00

P 23,600 P 23,600 P 76,00 P1,0&1,&00 P1,12,000 P1,007,3008e" Incoe 174,700 174,700

P1,0&1,&00 P1,0&1,&00 P1,12,000 P1,12,000


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19-2.

Part I Adjusting Journal Entries, 12&31&0'

AJE (1) e"reiation e"ense 1,;

Au!ulated de"reiation 1,;

(2) 're"aid interest 5,000

/etained earnings 3,100

7nterest e"ense 1,=00

(3) %erhandise inentory, 12#31#0, BS 15,000

%erhandise inentory, 12#31#0, 7S or&ost o$ Sales 15,000

(-) /etained Earnings 6,000

'urhases 6,000

(5) 're"aid insurane 3,000

7nsurane e"ense 3,000

(6) Store su""lies inentory 1,-50

Store su""lies e"ense 550

/etained earnings =00

() /etained earnings 30

&o!!issions e"ense 2-0

Arued o!!issions "aya.le =0

(;) &ash in .an< 650

%isellaneous ino!e 650

(=) 'urhases ;00

Aounts "aya.le ;00

(10) 7no!e $ro! 7nest!ent 3,000

7nest!ent 3,000

(11) 're"aid adertising and "ro!otions =0,000

Adertising and "ro!otions e"ense =0,000

(12) +> AJE

(13) %ahinery 20,000

e"reiation e"ense ? !ahinery 16

Allo8ane $or de"reiation ? !ahinery 16

@('22,000 ? '2,000) ? '-,000

=


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/e"airs and !aintenane 20,000

(1-) %isellaneous ino!e 2,000ain on sale o$ treasury shares 5,000

Land 2,000

Additional "aid#in a"ital arising $ro!Treasury Share transations 5,000

(15) ou.t$ul aounts e"ense 1-,500

Allo8ane $or unolleti.le aounts 1-,500

/eCuired allo8ane as o$ 12#31#0

? on "ast due aounts (5* '30,000)

? on urrent aounts (1* '-00,000)

Total9nadDusted de.it .alane o$ the Allo8aneF

aountAdditional 'roision

' 1,500

-,000

' 5,500

=,000'1-,500

Part II olumn $ ( Adjustment, 12&31&07

AJE (a) /etained earnings

'urhases

(.) +>+E

() /etained Earnings

Allo8ane $or de"reiation

(d) /etained Earnings Allo8ane $or de"reiation

(e) %ahinery /etained earnings

($) e"reiation

Allo8ane $or de"reiation

(g) /etained earnings

Taes

19-3. International Company

AJE (1) e"reiation e"ense 3,200

Au!ulated de"reiation ? deliery ehile 3,200

(2) &ost o$ sales 1=,000


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/etained earnings 1=,000

(3) &ost o$ sales ;,5007nentory ;,500

(-) &ash 5,600Aounts reeia.le 5,600

(5) Au!ulated de"reiation ? eCui"!ent 22,000

ECui"!ent 1;,300

ain on sale o$ eCui"!ent 3,00

(6) Esti!ated litigation loss 125,000

Esti!ated litigation lia.ility 125,000

() 9nreali:ed holding gain or loss ? 7no!e 2,000

Allo8ane $or deline in alue o$ seurities 2,000

(;) Arued salaries "aya.le 3,;00

Salaries e"ense 3,;00

(=) e"reiation e"ense -,000

ECui"!ent 32,000/e"airs e"ense 32,000

Au!ulated de"reiation ? eCui"!ent -,000

(10) 7nsurane e"ense 5,000

're"aid insurane ,000

/etained earnings 12,500

(11) +o adDusting entry4 Trade!ar< has inde$initeli$e and no a!orti:ation need .e !ade4

19-4. Sunshine Cosmetics, Inc.

)e*uirement +1

AJE (1) 7nentory, e4 31, 2006 (BS) 6,200

7nentory, e4 31, 2006 (7S) or&ost o$ sales 6,200

(2) ou.t$ul aounts e"ense 1-,=20Allo8ane $or dou.t$ul aounts

(15,660 ? -0) 1-,=20

(3) Aounts "aya.le 20,60


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'urhase returns and allo8anes 20,60

(-) Sales o!!issions 216

Arued o!!issions "aya.le 216

(5) reight#in 1,600

Aounts "aya.le 1,600

(6) Adertising e"ense 1,212

're"aid adertising 1,212

() reight#out or E"ense ;,-00

Sales ;,-00

(;) 7nterest reeia.le 1,3;07nterest ino!e 1,3;0

(=) e"reiation e"ense 1,300

Au!ulated de"reiation 1,300

(10) Su""lies e"ense 1,160

9nused Su""lies 1,160

(11) 'roision $or 7no!e ta e"ense 10,3;6

7no!e ta "aya.le 10,3;

6

)e*uirement +2

Sunshine &os!etis, 7n47no!e State!ent

or the Gear Ended ee!.er 31, 2006

/eenue $ro! salesSales '==;,;00 (a)

Less Sales returns and

and allo8anes ' 22,-00

Sales disounts 1,60 2-,160 '=-,6-0

&ost o$ goods sold

7nentory, January 1 '1=,-00

+et "urhases

'urhases '3-6,000Less "urhase returns

and allo8anes 20,60 () 325,2-0

reight#in 12,650 (.)

&ost o$ goods aaila.le

$or sale '51,2=0

Less 7nentory, ee!.er 31 10;,300 (d) -0;,==0


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ross "ro$it on sales '565,650

>ther ino!e

7nterest reenue ' 2,;0 (i)iidend reenue 1-,300

ain on sale o$ assets 3,000 5-,0;0

Total ino!e '61=,30

>"erating e"enses

Selling e"enses

Sales salaries and

o!!issions ' 0,216 (e)

Adertising e"ense 33,3=2 ($)e"reiation e"ense ?

Salesdeliery eCui"!ent 13,500 (g)reight e"ense ;,-00

Trael e"ense ? sales

re"resentaties =,120

%isellaneous selling

e"enses -,-00 '13=,02;

eneral and ad!inistratie

e"enses

Legal series ' -,-507nsurane and lienses 1,000

e"reiation e"ense ?

o$$ie eCui"!ent =,600

9tilities 12,;00

Tele"hone and "ostage 2,=50

Su""lies e"ense 1,160 ($$iersH salaries 3,200

ou.t$ul aounts e"ense 1-,=20 (h) 136,0;0Total o"erating e"enses (25,10;)

>ther e"ense and losses

7nterest e"ense ' =,0-0

Loss on sale o$ eCui"!ent -5,200 (5-,2-0)

7no!e $ro! ontinuing

o"erations .e$ore ino!e taes '2=0,3;2

7no!e taes =2,=22 (D)

7no!e $ro! ontinuing o"erations '1=,-60

isontinued o"erations

ain $ro! disontinuedo"erations (net o$ ino!e

taes o$ '25,600) 5-,-00

+et ino!e '251,;60


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Earnings "er ordinary share

7no!e $ro! ontinuing o"erations ('1=,-60 ;,000 shares) '2453

ain $ro! disontinued o"erations ('5-,-00 ;,000 shares) 040

+et ino!e ('251,;60 ;,000 shares) '3423

omputations-

(a) Sales '==0,-00 I ';,-00 '==;,;00

(.) reight#in '11,050 I '1,600 '12,650

() 'urhase returns and allo8anes '3-6,000 6* '20,60(d) 7nentory '-1,100 I '6,200 '10;,300

(e) Sales salaries and o!!issions '0,000 I (',200 3*) '0,216($) Adertising e"ense '32,1;0 I ('3,636 26) '33,3=2

(g) e"reiation e"ense '12,200 I ('15,600 10120) '13,500

(h) ou.t$ul aounts e"ense ('522,000 3*) ? '-0 '1-,=20

(i) 7nterest reenue '1,-00 I '1,3;0 '2,;0

(D) 7no!e taes '335,5;2 32* '10,3;

(


10/26


"her +ia$ili"ies.................... .............. 3,600 %d' 3,600 .............. .............. ..............In#es"en" in B !siness........ .............. &,3& %e' &,3& .............. .............. ..............

12,&3& 12,&3& .............. .............. .............. ..............

Cash..................................... .............. .............. %a' 10,600 .............. 10,600 ..............In#es"en" ec!ri"ies 9

"rading %a" arke" #al!e'.... .............. .............. %a' 2,&7& .............. 2,&7& ..............Trade cco!n"s ecei#a$le. .............. .............. %a' 12,&00 .............. 12,&00 ..............In#en"or/............................... .............. .............. %a' ,040 .............. ,040 ..............!**lies In#en"or/................ .............. .............. %a' 42& .............. 42& ..............Deli#er/ Tr!ck...................... .............. .............. %a' 2,100 .............. 2,100 ..............5i)"!res................................. .............. .............. %a' 12,&00 .............. 12,&00 ..............cc!!la"ed De*recia"ion 9

5i)"!res............................... .............. .............. .............. %a' 2,100 .............. 2,100Cash !rrender :al!e of

Ins!rance on fficers;+i#es................................... .............. .............. %a' 4,100 .............. 4,100 ..............

e"ained


11/26


Trade aounts reeia.le ($ully olleti.le)4444444444 12,500

7nentory44444444444444444444444444444444444444444444444444444444444444444 ;,0-0Su""lies inentory444444444444444444444444444444444444444444444444444 -25 ' 3-,1-0

7nest!ents

&ash surrender alue o$ li$e insurane44444444444444444444 -,100

Land, .uildings and eCui"!ent

Land444444444444444444444444444444444444444444444444444444444444444444444444 '30,000

Buildings44444444444444444444444444444444444444444444444444 '62,000

Less au!ulated de"reiation44444444444 ,50 5-,250

itures44444444444444444444444444444444444444444444444444444 '12,500Less au!ulated de"reiation44444444444 2,100 10,-00

eliery tru8nersH ECuity

&ontri.uted a"ital

Share a"ital, '5 stated alue,

5,000 shares4444444444444444444444444444444444444444 '25,000'aid#in a"ital $ro! sale o$

ordinary shares at !ore than

stated alue44444444444444444444444444444444444444444 30,000 '55,000

/etained earnings4444444444444444444444444444444444444444444444444444444444 30,160

Total o8nersH eCuity44444444444444444444444444444444444444444444444444444 ;5,160

Total lia.ilities and o8nersH eCuity444444444444444444444444444444 '13-,==0

19-6. Masipag Corporation

AdDusting Journal Entries, e4 31, 200

AJE (1) &ash 200,000


(2) Aounts reeia.le 10,000


12/26


&ash 10,000

(3) Ban< loan "aya.le -00,000

>ther e"enses 12,500

&ash -12,500

(-) &ash 5,000

Aounts reeia.le 5,000

(5) >"erating e"enses 1,500

&ash 1,500

(6) &ash 16,000

>ther ino!e 16,000

() Aounts reeia.le ? others (2,000 I 3,000) 5,000

>"erating e"enses 2,000

&ash ,000

(;) %arther ino!e -0,000

(=) >ther ino!e 5-,000

%arther urrent lia.ilities 50,000

(16) >"erating e"enses 21,=00


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Allo8ane $or dou.t$ul aounts 21,=00

(1) >ther ino!e 5-,5-5

isount on notes reeia.le 5-,5-5

(1;) isount on notes reeia.le -,5-5

>ther ino!e -,5-5

(1=) &ost o$ sales 60,000


(20) &ost o$ sales 25,000


(21) 7nentory 25,000

&ost o$ sales 25,000

(22) Aounts reeia.le ? others 16,000

7nentory 16,000

(23) Sales 13,000Aounts reeia.le 13,000

(2-) >"erating e"enses -6,250

're"aid e"enses -6,250


're"aid e"enses 5,000

(26) >ther assets 60,000

>"erating e"ense 120,000

're"aid e"enses 1;0,000

(2) Long#ter! .ond inest!ent 5,

>ther ino!e 5,

(2;) Aounts reeia.le ? others 5,333>ther ino!e 5,333

(2=) Land 1,062,50

0

Building 3,1;,500

Land and .uilding -,250,00

0


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(30) Building -25,000

Land and .uilding -25,000


Land and .uilding 20,000


're"aid e"enses 2,500

Land and .uilding 55,000

(33) Land and .uilding 23,500

>"erating e"enses 115,5;Au!ulated de"reiation ? .uilding 121,=22

(3-) 're"aid e"enses 10,000


ECui"!ent 20,000

(35) >"erating e"enses 55,-00

Au!ulated de"reiation ? eCui"!ent 55,-00

(36) Aounts "aya.le 50,000>ther urrent lia.ilities 50,000


Esti!ated lia.ility on 8arranties 15,000

(3;) >ther urrent lia.ilities 50,000

>ther e"enses 50,000

(3=) 7no!e taes "aya.le 115,2=0

'roision $or ino!e ta 115,2=0

%AS7'A &>/'>/AT7>+

Balane Sheet

ee!.er 31, 200

Assets

&urrent assets

&ash ' 3-,000%ar


15/26


isount on notes reeia.le (50,000) 550,000

Aounts reeia.le ? others =6,3337nentory, ee!.er 31, 200 1,=60,500

're"aid e"enses 15,250Total urrent assets '-,-0,533

7nest!entsLong#ter! .ond inest!ent --,0

'ro"erty, "lant and eCui"!entLand '1,062,500

Building '3,612,500Au!ulated de"reiation ? Building (121,=22) 3,-=0,5;

ECui"!ent '1,65-,000Au!ulated de"reiation ? ECui"!ent (235,-00) 1,-1;,600

Total "ro"erty, "lant and eCui"!ent 5,=1,6;>ther assets 110,000Total assets '11,2=6,2;;

Lia.ilities and ShareholdersH ECuity

&urrent lia.ilities

Aounts "aya.le ' ;,000Ban< loan "aya.le 1,100,000Arued e"enses "aya.le 5=,000>ther urrent lia.ilities 100,000

7no!e taes "aya.le 130,55;Esti!ated lia.ility on 8arranties 0,000Total urrent lia.ilities ' 2,336,55;

ShareholdersH eCuity>rdinary shares '5,000,000Additional "aid#in a"ital 1,655,250/etained Earnings 2,30-,-;0

Total shareholdersH eCuity ;,=5=,30Total lia.ilities and shareholdersH eCuity '11,2=6,2;;

%AS7'A &>/'>/AT7>+

7no!e State!ent

or the Gear Ended ee!.er 31, 200

Sales ' 6,-3,000&ost o$ sales (-,060,000)ross "ro$it ' 2,3,000

>ther ino!e 225,10>"erating e"enses (1,511,50=)>ther e"enses (3,500)7no!e .e$ore taes ' 1,053,01

'roision $or ino!e ta (3-2,--1)+et 7no!e ' 11,260


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19-7. elicity Company

AdDusting Journal Entries, e4 31, 200

AJE (1) &ash 31,000

're"aid interest 3,000

>ther harges 2,000Long#ter! de.t (urrent "ortion) 2-,000

Long#ter! de.t 12,000

(2) &ash 2,000

Aounts "aya.le and others 2,000

(3) 7nest!ents in S%& shares ? aaila.le $or sale

(non#urrent) 2,000

%ar"erating e"enses 20,000

(5) Allo8ane $or dou.t$ul aounts -1,100

>"erating e"enses -1,100

(6) Aounts reeia.le ;,000

>"erating e"enses ;,000

() 7nentory 12,000&ost o$ sales 12,000

(;) Sales 1-,-00

Aounts reeia.le 1-,-00

(=) /ealuation inre!ent 120,000Au!ulated de"reiation ;0,000

'ro"erty and eCui"!ent 200,000

(10) Au!ulated de"reiation 36,000


(11) >"erating e"enses -;,000Au!ulated de"reiation -;,000

(12) /ealuation inre!ent 2-,000/etained earnings 2-,000


17/26


(13) 'ro"erty and eCui"!ent 30,000>"erating e"enses 30,000

(1-) /etained earnings 13,000&u!ulatie e$$et o$ hange in aounting

"rini"le

13,000

(15) Aounts reeia.le ? others 22,000

&ash 22,000

(16) 'roision $or ino!e ta 25,--5

7no!e ta "aya.le 25,--5

EL7&7TG &>%'A+GBalane Sheet

ee!.er 31, 200

Assets

&urrent Assets

&ash44444444444444444444444444444444444444444444444444444444444444444444444444444444444444444444 ' 123,600

Aounts reeia.le44444444444444444444444444444444444444444444444444444444444444444444 1,51,;20Allo8ane $or dou.t$ul aounts444444444444444444444444444444444444444444444444 (2,000)

Aounts reeia.le #others44444444444444444444444444444444444444444444444444444444 62,000

7nentories4444444444444444444444444444444444444444444444444444444444444444444444444444444444 262,000

're"aid interest444444444444444444444444444444444444444444444444444444444444444444444444444 3,000

+on#urrent AssetsAdanes to a$$iliate4444444444444444444444444444444444444444444444444444444444444444444 -;,0007nest!ents in S%& shares ? aaila.le $or sale4444444444444444444444444 2,000

Allo8ane $or deline in alue o$ non#urrent inest!ent44444444 (20,000)

'ro"erty and eCui"!ent44444444444444444444444444444444444444444444444444444444444444 2,600,000

Au!ulated de"reiation4444444444444444444444444444444444444444444444444444444444

(1,12,000)

Total Assets ' 3,03,-20

Lia.ilities and ShareholdersH ECuity

Aounts "aya.le and others (inluding urrent "ortion o$.an< loan o$ '2-,000) 4444444444444444444444444444444444444444444444444444444444444444 ' -3-,616

7no!e ta "aya.le4444444444444444444444444444444444444444444444444444444444444444444444444444 100,205Long#ter! de.t44444444444444444444444444444444444444444444444444444444444444444444444444444444444 2,000

>rdinary share a"ital444444444444444444444444444444444444444444444444444444444444444444444444 2,0-2,000

/etained earnings4444444444444444444444444444444444444444444444444444444444444444444444444444444 =;,5==

9nreali:ed loss due to deline in alue o$ inest!ent in S%&444444444 (20,000)


18/26


/ealuation inre!ent44444444444444444444444444444444444444444444444444444444444444444444444 =6,000

Total Lia.ilities and ShareholdersH ECuity ' 3,03,-20

EL7&7TG &>%'A+G

7no!e State!entor the Gear Ended ee!.er 31, 200

Sales444444444444444444444444444444444444444444444444444444444444444444444444444444444444444444444444444 ' 2,5,12-

&ost o$ sales444444444444444444444444444444444444444444444444444444444444444444444444444444444444444 2,25,60-

ross "ro$it4444444444444444444444444444444444444444444444444444444444444444444444444444444444444444 ' -==,520

>"erating e"enses4444444444444444444444444444444444444444444444444444444444444444444444444444 (;3,522)

>ther harges4444444444444444444444444444444444444444444444444444444444444444444444444444444444444 (102,000)

7no!e $ro! ontinuing o"erations .e$ore ta4444444444444444444444444444444444 ' 313,==;'roision $or ino!e ta (35*)444444444444444444444444444444444444444444444444444444444 10=,;==

7no!e $ro! ontinuing o"erations a$ter ta4444444444444444444444444444444444444 ' 20-,0==isontinued o"erations (net)444444444444444444444444444444444444444444444444444444444444

(6,500)

+et ino!e44444444444444444444444444444444444444444444444444444444444444444444444444444444444444444 ' 1=,5==

19-8. !earn Company

&ondensed &o!"aratie 7no!e State!ents

200 200/ 2007

&onstrution reenue '=00,000 '-20,000 '200,000

&onstrution e"ense (-20,000) (1;2,000) (;0,000)

>ther e"enses (;0,000) (0,000) (50,000)

7no!e .e$ore ino!e taes '-00,000 '16;,000 ' 0,000

7no!e ta e"ense (120,000) (50,-00) (21,000)

+et ino!e '2;0,000 '11,600 ' -=,000

&o!"aratie State!ents o$ /etained Earnings

200 200/ 2007

Balane at .eginning o$ year,

as "reiously re"orted ' ,000 ' ,000 ' 0

Add AdDust!ent $or the

u!ulatie e$$et on "rior years

o$ a""lying retroatiely thene8 !ethod o$ aounting $orlong#ter! ontrats (net o$

ino!e taes) ;=,600 . -2,000 a 0


19/26



as adDusted '166,600 ' -=,000 ' 0+et ino!e 2;0,000 11,600 -=,000

Balane at end o$ year '--6,600 '166,600 ' -=,000

ote The o!"any has aounted $or reenue and osts $or long#ter!

onstrution ontrats .y the "erentage#o$#o!"letion !ethod in 200=, 8hereas

in "rior years reenues and osts 8ere deter!ined .y the o!"leted#ontrat

!ethod4 The ne8 !ethod o$ aounting $or long#ter! ontrats 8as ado"ted to

(state Dusti$iation $or hange in aounting "rini"le) and $inanial state!ents o$

"rior years hae .een restated to a""ly the ne8 !ethod retroatiely4 The e$$et

o$ the aounting hange on ino!e o$ 200= and on ino!e as "reiously re"ortedin 200 and 200; is as $ollo8s

%ncrease

200 200/ 2007

+et ino!e '112,000 '-,600 '-2,000

Earnings "er ordinary share '11420 '-46 '-420

The .alanes o$ retained earnings $or 200; and 200= hae .een adDusted $or thea$ter#ta e$$et o$ a""lying the ne8 !ethod o$ aounting retroatiely4

a '-=,000 ? ',000

. ('-=,000 I '11,600) ? (',000 I '0,000)

'2;0,000 ? @('600,000 ? '2;0,000 ? ';0,000) (1 ? 0430)

19-9. "oody Construction Company

)e*uirement +1

2007

Jan4 1 &onstrution in 'rogress 0,000 a

/etained Earnings @'0,000 (1 ? 0430) -=,000

e$erred Ta Asset 21,000a @('100,000 I '120,000) I ('125,000 I

'5,000) ? ('100,000 I '250,000)

)e*uirement +2

>>G &>+ST/9&T7>+ &>%'A+G

&ondensed &o!"aratie 7no!e State!ents ('artial)

2007 2006 200'


20/26


7no!e .e$ore ino!e taes '-00,000 '200,000 '220,000

7no!e taes at 30* (120,000) (60,000) (66,000)+et ino!e '2;0,000 '1-0,000 '15-,000

Earnings "er ordinary share(100,000 shares) '24;0 '14-0 '145-

&o!"aratie State!ents o$ /etained Earnings

2007 2006 200'


as "reiously re"orted '2-5,000 ' 0,000 . ' 0Add AdDust!ent $or the

u!ulatie e$$et on "rior years

o$ a""lying retroatiely

a""lying the ne8 !ethod o$

aounting $or long#ter!

ontrats (net o$ ino!e taes) -=,000 e ;-,000 d 0


as adDusted '2=-,000 '15-,000 ' 0+et ino!e 2;0,000 1-0,000 15-,000

Balane at end o$ year '5-,000 '2=-,000 '15-,000

. '100,000 (1 ? 0430)

'250,000 (1 ? 0430) I '0,000

d @('100,000 I '120,000) ? '100,000 (1 ? 0430)

e @('100,000 I '120,000 I '125,000 I '5,000) ? ('100,000 I '250,000)

(1 ? 0430)

ote The o!"any has aounted $or reenue and osts $or long#ter!onstrution ontrats .y the "erentage#o$#o!"letion !ethod in 200, 8hereas

in "rior years reenues and osts 8ere deter!ined .y the o!"eted#ontrat

!ethod4 The ne8 !ethod o$ aounting $or long#ter! ontrats 8as ado"ted to

(state Dusti$iation $or hange in aounting "rini"le) and $inanial state!ents o$"rior years hae .een restated to a""ly the ne8 !ethod retroatiely4 The e$$et

o$ the aounting hange on ino!e o$ 200 and on ino!e as "reiously re"orted

in 2005 and 2006 is as $ollo8s


21/26


%ncrease

2007 2006 200'+et ino!e '(-=,000) h '(35,000) g ';-,000 $

Earnings "er ordinary share '(04-=) '(0435) '04;-

The .alanes o$ retained earnings and de$erred taes $or 2006 and 200 hae .een

adDusted $or the a$ter#ta e$$et o$ a""lying the ne8 !ethod o$ aounting

retroatiely

$ ('220,000 ? '100,000) (1 ? 0430)

g ('200,000 ? '250,000) (1 ? 0430)

h @'-00,000 ? (';20,000 ? '350,000) (1 ? 0430)

%tems )estated

>n the 2005 and 2006 ino!e state!ents, onstrution reenues and e"enses8ould .e restated to the a""ro"riate a!ounts $or the "erentage o$ o!"letion

!ethod4 The onstrution in "rogress, de$erred ino!e taes, and retained

earnings on the .alane sheets 8ould also .e restated4

19-10. Sand Company

)e*uirement +1

a4 %ncorrect entriesBuilding 60,000

+otes 'aya.le 60,000

e"reiation E"ense Building

('60,000 30) 2,000Au!ulated e"reiation Building 2,000

orrect entries

Building -0,=;1 a

isount on +otes 'aya.le 1=,01=

+otes 'aya.le 60,000

a '60,000 046;3013

e"reiation E"ense Building 1,366 .

7nterest E"ense -,0=;

Au!ulated e"reiation 1,366isount on +otes 'aya.le -,0=;

. '-0,=;1 30

7nterest o!"uted using e$$etie

interest !ethod 10* '-0,=;1


22/26


Entries to correct error

isount on +otes 'aya.le 1=,01=Building 1=,01=

Au!ulated e"reiation Building 63-

7nterest E"ense -,0=;e"reiation E"ense Building 63-

isount on +otes 'aya.le -,0=;

.4 /etained Earnings -0,000

&ost o$ oods Sold -0,000

To orret error $ro! "rior year4

&ost o$ oods Sold 15,0007nentory 15,000

To orret error in urrent year4

4 The error $ro! 2005 8as ounter.alaned at

the end o$ 2006, so it an .e ignored4

/etained earnings 1;,000

Salaries and ages E"ense 1;,000

To orret error in salary and 8agearual in 20064

Salaries and ages E"ense 10,000

Salaries and ages 'aya.le 10,000

To arue salaries and 8ages at

ee!.er 31, 2004

)e*uirement +2

a4 See /eCuire!ent 14a4 o$ this solution $or the inorret entries that 8ere !ade

and the orret entries that should hae .een !ade4

isount on +otes 'aya.le (total disount

o$ '1=,01= less a!ount o$ '-,0=;

a!orti:ed $or 200) 1-,=21

Au!ulated e"reiation Building 63-

/etained Earnings 3,-6- d

Building 1=,01=

d &orretion o$ interest e"enseunderstate!ent o$ '-,0=; less

de"reiation oerstate!ent o$ '63-


23/26


.4 The error $ro! 2006 8as ounter.alaned

.y the end o$ 2005, so it an .e ignored4

/etained Earnings 15,000

7nentory 15,000

4 The errors $ro! 2005 and 2006 8ere ounter.alaned .y the end o$ 2006 and

200K res"etiely, so they an .e ignored4

/etained Earnings 10,000

Salaries and ages 'aya.le 10,000

19-11.Play Company

)e*uirement +1

SAS +o4 13 "aragra"hs -2 and -3 state that a hange in aounting "oliy

should .e a""lied retroatiely unless the a!ount o$ any resulting adDust!ent that

relates to "rior "eriods is not reasona.ly deter!ina.le4 Any resulting adDust!ent

should .e re"orted as an adDust!ent to the o"ening .alane o$ retained earnings4&o!"aratie in$or!ation should .e restated unless it is i!"ratia.le to do so4

The $inanial state!ents, inluding the o!"aratie in$or!ation $or "rior "eriods,

are "resented as i$ the ne8 aounting "oliy had al8ays .een in use4 There$ore,

o!"aratie in$or!ation is restated in order to re$let the ne8 aounting "oliy4

The a!ount o$ the adDusting relating to "eriods "rior to those inluded in the

$inanial state!ents is adDusted against the o"ening .alane o$ retained earnings o$the earliest "eriod "resented4 Any other in$or!ation 8ith res"et to "rior "eriods,suh as historial su!!aries o$ $inanial data, is also restated4F

'LAG &>%'A+G

or


24/26


E$$et o$ hange in aounting "rini"le $ro!

e"ensing to a"itali:ing relining osts in theyear o$ the hange (Shedule 2)

urnae A (Jan4 2006) (56,000) 22-,000

urnae B (Jan4 200) 2-0,000 ##+et adDust!ents 52,000 --,000

7no!e .e$ore ino!e taes '-,0;2,000 '3,3-,000

Sc!edule 1-

&o!"utation o$ AdDusted e"reiation

&ost o$ eCui"!ent (no salage alue) '1,000,000

e"reiation .ased on 10#year li$e ' 100,000e"reiation .ased on ;#year li$e (125,000)

AdDust!ent ' (25,000)Sc!edule 2-

&o!"utation o$ E$$et o$ &hange in Aounting

'rini"le ro! E"ensing to &a"itali:ing

/elining &osts on the Gear o$ the &hange

&a"itali:ation o$ urnae B '300,000e"reiation on urnae B .ased on 5#year li$e

('300,000 20*) (60,000)e"reiation on urnae A .ased on 5#year li$e

('2;0,000 20*) (56,000)

AdDust!ent '1;-,000

)e*uirement +2'LAG &>%'A+G

E$$et Be$ore 7no!e Taes

o$ &hange in Aounting 'rini"le ro!E"ensing to &a"itali:ing /elining &osts

or Gear Ended ee!.er 31, 200

&a"itali:ation o$ urnae A '2;0,000

e"reiation on urnae A .ased on 5#year li$e

('2;0,000 20*) (56,000)

AdDust!ent '22-,000

19-12. o rancisco, Inc.

+et 7no!e $or 2005 /etained Earnings 123106

7te! 9nderstated >erstated 9nderstated >erstated

14 '1-,100 0 0 0

24 ' ,000 0 ' 5,000 0


25/26


34 0 '22,000 0 '11,000

-4 '33,000 0 '33,000 054 0 '20,000 0 '10,000

64 '1;,200 0 0 0

Although e"lanations 8ere not reCuired in ans8ering the Cuestion, they are

inluded .elo8 $or your interest4

E"lanations

14 The net ino!e 8ould .e understated in 2005 .eause interest ino!e isunderstated4 The net ino!e 8ould .e oerstated in 2006 .eause interest

ino!e is oerstated4 The errors, ho8eer, 8ould ounter.alane (8ash) sothat the Balane Sheet (/etained Earnings) 8ould .e orret at the end o$

20064

24 The de"reiation e"ense in 2005 should .e '1,000 $or this !ahine4 Sinethe !ahine 8as .ought on July 1, 2005, only one#hal$ o$ a year should .e

ta


26/26


o!ission in inentory oer the t8o#year "eriod 8ill ounter.alane, and

retained earnings at the end o$ 2006 8ill .e orret4

19-13. C Patrick Corporation

2006 200

+et ino!e, as re"orted '2=,000 '3,000

/ent reeied in 2006, earned in 200 (1,300) 1,300

ages not arued, 123105 1,100

ages not arued, 123106 (1,500) 1,500

ages not arued, 12310 (=-0)

7nentory o$ su""lies, 123105 (1,300)7nentory o$ su""lies, 123106 -0 (-0)

7nentory o$ su""lies, 12310 1,-20

&orreted net ino!e '26,-0 '3=,5-0

chapter19 - answer.doc

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