Bonita Company is in the process of adjusting and correcting itsbooks at the end of 2017. In reviewing its records, the followinginformation is compiled.
1. Bonita has failed to accrue sales commissions payable at theend of each of the last 2 years, as follows.
December 31, 2016 $3,300 December 31, 2017 $2,300
2. In reviewing the December 31, 2017, inventory, Bonitadiscovered errors in its inventory-taking procedures that havecaused inventories for the last 3 years to be incorrect, asfollows.
December 31, 2015 Understated $16,700 December 31, 2016 Understated $19,000 December 31, 2017 Overstated $6,000
Bonita has already made an entry that established the incorrectDecember 31, 2017, inventory amount.
3. At December 31, 2017, Bonita decided to change the depreciationmethod on its office equipment from double-declining-balance tostraight-line. The equipment had an original cost of $90,000 whenpurchased on January 1, 2015. It has a 10-year useful life and nosalvage value. Depreciation expense recorded prior to 2017 underthe double-declining-balance method was $39,600. Bonita has alreadyrecorded 2017 depreciation expense of $11,600 using thedouble-declining-balance method. 4. Before 2017, Bonita accounted for its income from long-termconstruction contracts on the completed-contract basis. Early in2017, Bonita changed to the percentage-of-completion basis foraccounting purposes. It continues to use the completed-contractmethod for tax purposes. Income for 2017 has been recorded usingthe percentage-of-completion method. The following information isavailable.
Pretax Income
Percentage-of-Completion
Completed-Contract
Prior to 2017 $141,700 $94,900 2017 57,500 21,600
Prepare the journal entries necessary at December 31, 2017, torecord the above corrections and changes. The books are still openfor 2017. The income tax rate is 40%. Bonita has not yet recordedits 2017 income tax expense and payable amounts so current-year taxeffects may be ignored. Prior-year tax effects must be consideredin item 4. (Credit account titles are automaticallyindented when amount is entered. Do not indent manually. If noentry is required, select "No Entry" for the account titles andenter 0 for the amounts.)
Bonita Company is in the process of adjusting and correcting itsbooks at the end of 2017. In reviewing its records, the followinginformation is compiled.
| 1. | Bonita has failed to accrue sales commissions payable at theend of each of the last 2 years, as follows. |
| December 31, 2016 | $3,300 | |
| December 31, 2017 | $2,300 |
| 2. | In reviewing the December 31, 2017, inventory, Bonitadiscovered errors in its inventory-taking procedures that havecaused inventories for the last 3 years to be incorrect, asfollows. |
| December 31, 2015 | Understated | $16,700 | ||
| December 31, 2016 | Understated | $19,000 | ||
| December 31, 2017 | Overstated | $6,000 |
Bonita has already made an entry that established the incorrectDecember 31, 2017, inventory amount.
| 3. | At December 31, 2017, Bonita decided to change the depreciationmethod on its office equipment from double-declining-balance tostraight-line. The equipment had an original cost of $90,000 whenpurchased on January 1, 2015. It has a 10-year useful life and nosalvage value. Depreciation expense recorded prior to 2017 underthe double-declining-balance method was $39,600. Bonita has alreadyrecorded 2017 depreciation expense of $11,600 using thedouble-declining-balance method. | |
| 4. | Before 2017, Bonita accounted for its income from long-termconstruction contracts on the completed-contract basis. Early in2017, Bonita changed to the percentage-of-completion basis foraccounting purposes. It continues to use the completed-contractmethod for tax purposes. Income for 2017 has been recorded usingthe percentage-of-completion method. The following information isavailable. |
Pretax Income | ||||
Percentage-of-Completion | Completed-Contract | |||
| Prior to 2017 | $141,700 | $94,900 | ||
| 2017 | 57,500 | 21,600 | ||
Prepare the journal entries necessary at December 31, 2017, torecord the above corrections and changes. The books are still openfor 2017. The income tax rate is 40%. Bonita has not yet recordedits 2017 income tax expense and payable amounts so current-year taxeffects may be ignored. Prior-year tax effects must be consideredin item 4. (Credit account titles are automaticallyindented when amount is entered. Do not indent manually. If noentry is required, select "No Entry" for the account titles andenter 0 for the amounts.)
Related questions
Pig and Whistle Company, a smallcompany following ASPE, is adjusting and correcting its books atthe end of 2017. In reviewing its records, it compiles thefollowing information.
a) Pig and Whistle has failed to accrue sales commissionspayable at the end of each of the last two years, as follows:
Dec. 31, 2017 | $6,200 |
Dec. 31, 2018 | $3,800 |
B) In reviewing the December 31, 2018 inventory, Pig and Whistlediscovered errors in its inventory-taking procedures that havecaused inventories for the last three years to be incorrect, asfollows:
Dec. 31, 2016 | Understated $21,000 |
Dec. 31, 2017 | Understated $24,000 |
Dec. 31, 2018 | Overstated $ 9,000 |
Pig and Whistle has already made anentry that recognized the incorrect December 31, 2018 inventoryamount.
C) In 2018, Pig and Whistle changed the depreciation method onits office equipment from double-declining-balance to straight-linebecause of a change in the pattern of benefits received. Theequipment had an original cost of $160,000 when purchased onJanuary 1, 2016. At that time, it was estimated that the officeequipment had an eightyear useful life and no residual value.Depreciation expense recorded prior to 2018 under thedouble-declining- balance method was $70,000. Pig and Whistle hasalready recorded 2018 depreciation expense of $22,500 using thedouble-declining-balance method.
D) Before 2018, Pig and Whistle accounted for its income fromlong-term construction contracts on the completed- contract basisbecause it was unable to reliably measure the degree of completionor the estimated costs to complete. Early in 2018, Pig and Whistlechanged to the percentage-of-completion basis for financialaccounting purposes. The change was a result of experience with theproject and improved ability to estimate the costs to completionand therefore the percentage complete. The completed-contractmethod will continue to be used for tax purposes. Income for 2018has been recorded using the percentage-of-completion method. Thefollowing information is available:
Pre-Tax Income | ||
Percentage-of-Completion | Completed-Contract | |
Prior to 2018 | $195,000 | $145,000 |
2018 | 75,000 | 30,000 |
Required:
1) Prepare the necessary journalentries at December 31, 2018 to record the above corrections andchanges as appropriate. The books are still open for 2018. As Pigand Whistle has not yet recorded its 2018 income tax expense andpayable amounts, tax effects for the current year may be ignored.Pig and Whistleâs income tax rate is 25%. Assume that Pig andWhistle applies the taxes payable method of accounting for incometaxes.
The Diamond Glitter Company is in the process of preparing itsfinancial statements for 2012. Assume that no entries fordepreciation have been recorded in 2012. The following informationrelated to depreciation of fixed assets is provided to you.
1. The company purchased equipment on January 2, 2009, for$165000. At that time, the equipment had an estimated useful lifeof 7 years with a $25000 salvage value. The equipment isdepreciated on a straight-line basis. On January 2, 2012, as aresult of additional information, the company determined that theequipment has a remaining useful life of 3 years with a $15000salvage value.
2. During 2012, the company changed from thedouble-declining-balance method for its building to thestraight-line method. The building originally cost $625000. It hada useful life of 10 years and a salvage value of $50000. Thefollowing computations present depreciation on both bases for 2010and 2011. | ||||
2011 | 2010 | |||
Straight-line | $ 57,500 | $ 57,500 | ||
Declining-balance | $ 92,000 | $ 115,000 | ||
3. The company purchased a machine on July 1, 2010, at a cost of$450000. The machine has a salvage value of $25000 and a usefullife of 10 years. The company's bookkeeper recorded straight-linedepreciation in 2010 and 2011 but failed to consider the salvagevalue. Ignore Tax effect.
4. The company has failed to accrue sales commissions payable atthe end of each of the last 2 years, as follows. | ||||
December 31, 2011 | $ 5,400 | |||
December 31, 2012 | $ 4,600 | |||
5. In reviewing the December 31, 2011, inventory, the companydiscovered errors in its inventory-taking procedures that havecaused inventories for the last 3 years to be incorrect, asfollows. The company has already made an entry that established theincorrect December 31, 2012, inventory amount. | ||||
December 31, 2010 | Understated | $ 32,000 | ||
December 31, 2011 | Understated | $ 51,000 | ||
December 31, 2012 | Overstated | $ 9,500 | ||
6. At December 31, 2012, the company decided to change to thestraight-line depreciation method on its retail display equipmentfrom double-declining-balance. The equipment had an original costof $250000 when purchased on January 1, 2011. It has a salvagevalue of 0 and a 8-year useful life. Depreciation expense recordedprior to 2012 under the double-declining-balance method was $62500.The company has already recorded 2012 depreciation expense of$46875 using the double-declining-balance method.
7. Before the current year, the company accounted for its incomefrom long-term construction contracts on the completed-contractbasis. Early this year, the company changed to thepercentage-of-completion basis for accounting purposes, butcontinues to use the completed-contract method for tax purposes.Income for the current year has been recorded using the new method.Prior year tax effects must be considered. The followinginformation is available. | ||||
Pretax Income | ||||
Percentage-of-Completion | Completed-Contract | |||
Prior to 2012 | $320,000 | $180,000 | ||
2012 | $140,000 | $120,000 | ||
Required: | |||
Prepare the journal entries necessary at December 31, 2012 torecord the corrections and changes made to date related to theinformation provided. The books are still open for 2012. The incometax rate is 35%. The company has not yet recorded its 2012 incometax expense and payable amounts so current-year tax effects may beignored. | |||
