Whittier Construction Co. had followed the practice of expensing all materials assigned to a construction job without recognizing any salvage inventory. On December 31, 2017, it was determined that salvage inventory should be valued at $52,000. Of this amount, $29,000 arose during the current year. How does this information affect the financial statements to be prepared at the end of 2017?
The remaining inventory is salvage inventory, and the current period amount is shown as a reduction of materials cost in financial statements
Salvage inventory is defined as the value of inventory left after its use.
It will be handled as the correction of an error. The portion of the change related to the prior periods ($33,000) should be reported as the adjustment to the opening balance of retained earnings in 2007. Suppose the financial statements of the company are to be presented for comparative purposes. In that case, the remainder of the inventory value should be reported as a reduction of materials cost in financial statements.
Joy Cunningham Co. purchased a machine on January 1, 2015, for $550,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2018, the firm’s accountant found that the entry for depreciation expense had been omitted in 2016. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2018. At present, the company uses the sum-of-the-years’-digits method for depreciating equipment. Instructions Prepare the general journal entries that should be made at December 31, 2018, to record these events. (Ignore tax effects.)
Penn Company is in the process of adjusting and correcting its books at the end of 2017. In reviewing its records, the following information is compiled.
1. Penn has failed to accrue sales commissions payable at the end of each of the last 2 years, as follows. December 31, 2016 $3,500 December 31, 2017 $2,500
2. In reviewing the December 31, 2017, inventory, Penn discovered errors in its inventory-taking procedures that have caused inventories for the last 3 years to be incorrect, as follows. December 31, 2015 Understated $16,000 December 31, 2016 Understated $19,000 December 31, 2017 Overstated $ 6,700 Penn has already made an entry that established the incorrect December 31, 2017, inventory amount.
3. At December 31, 2017, Penn decided to change the depreciation method on its office equipment from double-decliningbalance to straight-line. The equipment had an original cost of $100,000 when purchased on January 1, 2015. It has a 10- year useful life and no salvage value. Depreciation expense recorded prior to 2017 under the double-declining-balance method was $36,000. Penn has already recorded 2017 depreciation expense of $12,800 using the double-declining-balance method. 4. Before 2017, Penn accounted for its income from long-term construction contracts on the completed-contract basis. Early in 2017, Penn changed to the percentage-of-completion basis for accounting purposes. It continues to use the completedcontract method for tax purposes. Income for 2017 has been recorded using the percentage-of-completion method. The following information is available.
Prior to 2017 $150,000 $105,000
2017 60,000 20,000
Prepare the journal entries necessary at December 31, 2017, to record the above corrections and changes. The books are still open for 2017. The income tax rate is 40%. Penn has not yet recorded its 2017 income tax expense and payable amounts so current-year tax effects may be ignored. Prior-year tax effects must be considered in item 4.
An entry to record Purchases and related Accounts Payable of $13,000 for merchandise purchased on December 23, 2018, was recorded in January 2019. This merchandise was not included in inventory at December 31, 2018. What effect does this error have on reported net income for 2018? What entry should be made to correct for this error, assuming that the books are not closed for 2018?
State how each of the following items is reflected in the financial statements. (a) Change from FIFO to LIFO method for inventory valuation purposes. (b) Charge for failure to record depreciation in a previous period. (c) Litigation won in current year, related to prior period. (d) Change in the realizability of certain receivables. (e) Write-off of receivables. (f) Change from the percentage-of-completion to the completed-contract method for reporting net income.
Simms Corp. controlled four domestic subsidiaries and one foreign subsidiary. Prior to the current year, Simms Corp. had excluded the foreign subsidiary from consolidation. During the current year, the foreign subsidiary was included in the financial statements. How should this change in accounting entity be reflected in the financial statements?
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