Kriveloff Company is in the process of closing its books at the end of 2017. The
ID: 2438441 • Letter: K
Question
Kriveloff Company is in the process of closing its books at the end of 2017. The company's preliminary income statement for 2017 and its reported income statement for 2016 are given below.
2017 2016
Sales Revenues $ 900,000 $ 880,000
Cost of Goods Sold (450,000) (425,000)
Gross Profit 450,000 455,000
Depreciation (115,000) (115,000)
Other Expenses (108,000) (102,000)
Net Income $ 227,000 $ 238,000
Kriveloff's records reveal the following information:
(1) Kriveloff failed to accrue $7,000 of supplies expense at the end of 2016. The supplies expense was recorded as paid in 2017.
(2) On 1/1/15, Kriveloff purchased a machine for $120,000. Although the machine was expected to have a five-year life, it was erroneously expensed in recording the purchase. The appropriate depreciation method for this machine is double-declining-balance with no residual.
(3) At the end of 2017, Kriveloff decided to change its inventory costing method from average cost to the FIFO method. An analysis of the accounting records provides the following cost of goods sold amounts under average cost and FIFO:
Year FIFO Average
2015 410,000 430,000
2016 420,000 425,000
2017 432,000 450,000
(4) Kriveloff acquired a truck on 1/3/15 for $75,000 and estimated its useful life to be 6 years with a salvage value of $15,000. In 2017, after the preliminary statements were prepared, Kriveloff realized that the truck could be used for an additional 5 years, but that the salvage value at the end of that time would probably be only $10,000. Straight-line depreciation is being used.
Required:
A. Prepare the necessary journal entries at December 31, 2017, to record the above information.
B. Prepare new comparative income statements to reflect the adjustments required by items (1)-(3) above. You may ignore income taxes.
C. Retained earnings reported for the end of 2016 was $2,333,000 and at the end of 2015 was $2,195,000. Dividends of $100,000 have been declared in each year. Prepare comparative statements of retained earnings for Kriveloff Company, reflecting appropriate adjustments from items (1)-(3) above, ignoring income taxes.
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Explanation / Answer
2017 2016 Sales revenue 900000 880000 Cost of Goods Sold -450000 -425000 Gross Profit 450000 455000 Depreciation -115000 -115000 Other expenses -108000 -102000 Net Income 227000 238000 2016 Supplies Expense $7,000 To Supply Expense payable $7,000 (Being recording accrued expense in 2016) 2017 Supply Expense payable $7,000 To Cash $7,000 (Being 2016 accrued supplies expense paid) 2016 Depreciation 28800 To Accumulated Depreciation 28800 (120000/5*2) = 40% (120000-48000)*40% (Being Depreciation recorded for 2016) 2017 Depreciation 17280 To Accumulated Depreciation 17280 (120000-48000-28800)*40% (Being Depreciation recorded for 2017) 2016 Inventory A/c 5000 To Cost of Goods Sold 5000 (425000-420000) 2017 Inventory A/c 18000 To Cost of Goods Sold 18000 (450000-432000) 2017 Depreciation 5000 To Accumulated depreciation 5000 (Being depreciation for truck) (Assuming the depreciation for truck has not been recorded) Depreciation for truck in 2017 Purchase Price 75000 Less : Depreciation (75000-15000)/6 for 2015 10000 65000 Less : Depreciation for 2016 10000 Book Value as on 1.01.2017 55000 Less : Depreciation (55000-10000)/9 5000 50000 B 2017 2016 Sales revenue 900000 880000 Cost of Goods Sold -432000 -420000 Gross Profit 468000 460000 Depreciation -137280 -143800 Other expenses -101000 -109000 Net Income 229720 207200 C Retained Earnings 2017 2016 Opening Balance 2333000 2195000 Less : Net Profit as per previous -227000 -238000 Add : Net Profit as per adjustments 229720 207200 Less: dividend -100000 -100000 Ending Retained earnings 2235720 2064200
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