CHAPTER 8 ERRORS AND THEIR CORRECTIONS PROBLEMS 8-1 a. b. c. d. e. f. g. h. i. j. k. 8.2
2007 net income Understated Overstated Overstated Understated No effect Overstated No effect Overstated Overstated Understated Overstated
2008 net income Overstated Understated Understated Overstated No effect No effect No effect understated Understated Overstated Understated
Jay Company
Understatement of 12!10 inventor Overstatement of 12!10- inventor Understatement of 200 de$reciation e$ense ! ear insurance $remium charged to e$ense in 200 Unrecorded sa%e of fu%% de$reciated machine in 200Net understatement (overstatement)
Understatement (overstatement) 12!107 12!107 2007 Net "orkin &etai income g ned #a$ita% 'arni ngs (*8+000) ,, ,, (*0+00) (*0+00) (*0+00) ,, ,, (11+00) (110+000) 110+000 110+000 7+000 7+000 7+000 /(12!+00) /1**+00 /1!!+000
8-3 8-3 Mark Mark Com Compa pany ny &e$orted net income Overstatement of 200- ending inventor Under nderst stat ated ed 20000- accr ccrued ued e$e e$ens nses es Unrecognied su$$%ies inventor #orrected net income
20 200/1+000 ( !-+000) ( *0+0 *0+000 00)) /11+000
2007 /210+000 !-+000 *0+ *0+000 000 1+000 /!01++000
,
8- 8- J!n" J!n"## In$. In$.
Understated 200- ending inventor Overstated 200 de$reciation e$ense Understated 200- de$reciation e$ense Net understatement in retained earnings
'ffect on 010108&etained 'arnings Understated (Overstated) +000 12+00 ( *+000) /1!+00
&etained earnings as of 3anuar 1+ 2007 shou%d be increased b /1!+00 8-% 8-% R&'o R&'or( r( Comp Compan any y (a) a. /re$aid insurance O$erating e$enses &etained earnings b.
&etained 'arnings 4rading 5ecurities
+!00 !+100 12+*00 1-+70 1-+70
Chapter 8 – Errors and their Corrections
4rading 5ecurities 2*+20 Unrea%ied 6ains on 4rading 5ecurities 202+00 178+20 2*+20 c.
d.
e.
O$erating '$enses 9%%o:ance for ;ad
2*+20
+00 +00
&etained earnings #ost of goods so%d
!7+70
#ost of goods so%d =nventor
*+00
>achiner O$erating e$enses &etained earnings 9ccumu%ated de$reciation
7+000 -+20
!7+70
*+00
-8+70 12+00
(b) 200/*87+00 12+*00 (1-+70
&e$orted net income 9djustments? a. b. c. d.
(!7+70)
e. #orrected net income 8.)
-8+70 /1*+10
2007 /0+000 ( !+100) 2*+20 (+00) !7+70 (*+00) ( -+20) /*7+-0
Spa*& Company 200/1*+000 (-+00)
&e$orted Net =ncome (a)&ent income of 2007 recorded in 200(b)Omission of unused su$$%ies 'nd of 200 'nd of 200'nd of 2007 (c) Omission of accrued sa%aries 'nd of 200 'nd of 200'nd of 2007 #orrected net income
8.+
(-+00) !+700
+00 (7+00) /1!!+700
L!,y Corpora(!on =nitia% amounts 9djustments? 1. 2. !. *. . -. 7. 8. 9djusted amounts
=nventor /1+70+000 , 0+000 20+000 2-+000 2+000 !0+000 , 2+000 /1+0!+000
9ccounts /aab%e /1+200+000 , , , , , , -0+000 *+000 /1+2-*+000
42
Net 5a%es /8+00+000 (!+000) , , (*0+000) , , , , /8+*2+000
2007 /18+000 -+00
(!+700) 7+100
7+00 (*+700) /17+700
Chapter 8 – Errors and their Corrections
MLTIPLE CHOICE >#1 >#2 >#! >#* ># >#>#7 >#8 ># >#10 >#11 >#12 >#1! >#1* >#1
; # 9 9 ; 9 9 # 9 9 < 9 < # #
>#1>#17 >#18 >#1 >#20 >#21 >#22 >#2! >#2* >#2 >#2>#27 >#28 >#2 >#!0 >#!1 >#!2 >#!! >#!* >#! >#!-
; ; < ; # < 9 9 9 < < 9 9 9 # < # # < < <
>#!7 >#!8 >#! >#*0 >#*1
< < ; # 9
>#*2 >#*2 >#*! >#** >#* >#*-
; 9 < ; 9 #
200+000 *0+000 !0+000 over @ 27+000 over @ 7+00 over *8+000 under 1-+00 net overstatement. 27+000 over 7+00 under *8+000 under 28+00 net understatement. 27+000 over @ -+000 over *8+000 under 7+00 under 22+00 net understatement. 20+000 100+000 @ 10+000 0+000 (!0+000 *-) @ (120+000 182* !20+000 1+0+000 @ 10+000 80+000 @ 120+000 +000 100+000 1+**+000 !12+00 @ 2+000 , *+000 0+000 18+000 !0+000 2!+00 10+000 8+000 2+000 net understated 10+000 @ 2+000 8+000 27+000 200* net income ? 8+000 overstated 2+000 understated A 200 net income 8+000 understated 2+000 overstated. 2+!00+000 @ -0+000 *0+000 0+000 @ 100+000 2+!70+000 10+000 7+700 28+000 7+700 8+00 112+00 1-+000 -1!+*00 @ 0+000 @ 12+000 28+000 20+000 @ 1!+00 8+000 4he shares are treasur shares.
!00+00 80+000 -0+000 *+000 12+000 *!*+00 @ 12+000 -0+000 @ 1+000 1+00+000 B 12C !12
&etained earnings beginning of *!0+000 as re$orted correction of $rior $eriod errors of / 20+00 ( , !-+000 @ !1+00 1-+000) @ 2007 corrected net income of 28+800 2+00+000 112+00 0+000 80+000 1+!00+000 0+000 !-+000 @ 28+000 00+000 @ 7+700 @ !0+000 @ 18+000 @ 8+000 *+000 1-+000 @ 1+000 80+000 @ 18+000 @ 9ccrued interest of 10+000 D ( a%though finance costs shou%d be $resented se$arate%+ as reEuired b /95 1+ tota% interest cost inc%uded in other %osses and e$enses is 10+000)A thus+ other %osses and e$enses 2*8+000 10+000 8+000 !0+000 *+000 20+000 @ !1+00 7+000 @ 1-+000 *!0+000 !-+000 @ !1+00 1-+000 0+000 @ !-+000 'rrata? 4he Euestion shou%d have been the adjusted amount of 200- e$enses instead of 200* e$enses A *0+000 !1+00 @ 1-+000
Corr&$(!n" &n(r!&' !n 2+ /or Tak& On& Corpora(!on 0MC 1+ + O$erating '$enses
7+700
43
Chapter 8 – Errors and their Corrections
#ash
7+700
5a%es
112+00 9ccounts receivab%e
112+00
=nventories #ost of 5a%es
0+000 0+000
9%%o:ance for ;ad
1-+000 1-+000 !0+000 !0+000
=nventories 9ccounts /aab%e 12+000
12+000
&etained 'arnings #ost of 5a%es
!-+000 !-+000
#ost of 5a%es =nventories
28+000
4reasur 5tock =nvestments in 5tock
2-0+000
28+000
2-0+000
O$erating '$enses /re$aid '$enses &etained 'arnings !1+00
18+000
O$erating '$enses /re$aid '$enses 8+000
8+000
1!+00
9ccumu%ated
*+000
5a%es 9ccumu%ated
0+000 12+000 18+000
*+000
80+000
=nterest '$ense (Other Fosses and '$enses) =nterest /aab%e
10+000 10+000
>ortgage /aab%e #urrent /ortion of >ortgage /aab%e
00+000 00+000
&etained 'arnings O$erating '$enses
1-+000 1-+000
O$erating '$enses 9ccrued '$enses 1+000
1+000
5a%es
80+000 9dvances from #ustomers
80+000
ork!n" Pap&r a*45'(m&n(' (o r&'(a(& 2) /!nan$!a, '(a(&m&n(' #ost of 5a%es =nventor
44
!-+00 !-+00
Chapter 8 – Errors and their Corrections
/re$aid e$enses O$erating '$enses
!1+00 !1+00
O$erating '$enses 9ccrued '$enses 1-+000
1-+000
>ortgage /aab%e #urrent /ortion of >ortgage /aab%e
00+000 00+000
45
