Tack reported a Retained Earnings balance of $150,000 at Dec 312007.In June 2008
ID: 2433400 • Letter: T
Question
Tack reported a Retained Earnings balance of $150,000 at Dec 312007.In June 2008, Tack’s internal audit staff discovered 2errors that were made in preparing the 2007 financial statementsthat are considered material:
a. a. Merchandisecosting $40,000 was mistakenly omitted from the 2007 endinginventory
b. b. Equipmentpurchased on July 1 2007 for $70,000 was mistakenly charged to arepairs expense account. The equipment should have been capitalized& depreciated using the straight line depreciation, a 10 yearuseful life, and $10,000 salvage value.
1. 1. What amount shouldTack report as a prior period adjustment to beginning RetainedEarnings at Jan 1 2008 (Ignore tax)
2. 2. Give the journalentries that Tack would make in June 2008 to correct the errorsmade in 2007. Assume that depreciation for 2008 is made as a yearend adjusting entry (Ignore tax)
Explanation / Answer
1. 1. What amount should Tack report as aprior period adjustment to beginning Retained Earnings at Jan 12008 (Ignore tax) ======================================================================== $40,000+ $70,000 - $3,000 = $107,000 RetainedEarnings After Prior Period adjustments = $150,000 + $107,000 =$257,000 2. 2. Give the journal entries that Tack would make in June2008 to correct the errors made in 2007. Assume that depreciationfor 2008 is made as a year end adjusting entry (Ignoretax) ======================================================================= a. a. Merchandise costing$40,000 was mistakenly omitted from the 2007 endinginventoryInventory $40,000 RetainedEarnings $40,000 b. b. Equipmentpurchased on July 1 2007 for $70,000 was mistakenly charged to arepairs expense account. The equipment should have been capitalized& depreciated using the straight line depreciation, a 10 yearuseful life, and $10,000 salvage value. Equipment $70,000 RetainedEarnings $70,000 RetainedEarnings [(70,000 - 10,000) /10] /2 $3,000 ToAccumulatedDepreciation $3,000 RetainedEarnings $40,000 b. b. Equipmentpurchased on July 1 2007 for $70,000 was mistakenly charged to arepairs expense account. The equipment should have been capitalized& depreciated using the straight line depreciation, a 10 yearuseful life, and $10,000 salvage value. Equipment $70,000 RetainedEarnings $70,000 RetainedEarnings [(70,000 - 10,000) /10] /2 $3,000 ToAccumulatedDepreciation $3,000 Equipment $70,000 RetainedEarnings $70,000 RetainedEarnings [(70,000 - 10,000) /10] /2 $3,000 ToAccumulatedDepreciation $3,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.