Kriveloff Company is in the process of closing its books at the end of 2017. The
ID: 2546773 • 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 2016 $ 880,000 Sales Revenues Cost of Goods Sold Gross Profit 2017 $ 900,000 450,000) 450,000 (115,000) 455,000 (115,000) (102,000) Other Expenses Net Income $ 227.000 Kriveloffs 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 2015 2016 2017 FIFO 410,000 420,000 432,000 Average 430,000 425,000 450,000 (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-ine depreciation is being used. Required: A Prepare the necessary journal entries at December 31, 2017, to record the above information Prepare new comparative income statements to reflect the adjustments required by items (1) (3) above. You may ignore income taxes. B. 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 tems (1)-(3) above, ignoring income taxes.Explanation / Answer
A. Journal Entries
B. Revise Income Statment
C. Comperative Statment of retained earnings
Workings.
Dpreciation on machinery in point No.2
Cost = 120000 Salvage value = 0 life = 5 years
Rate of depreciation as per slm = 1/5 = 20%
Rate for double declining method = 20% x 2 =40%
Depreciation for 2015 = 120000 x 40% = $48000
For 2016 = (120000 - 48000) x 40% = $28800
For 2017 = (120000 - 48000 - 28800) x 40% = $17280
2. Inventory in 2017 will be increased By $18000 (450000 - 432000) and due to this COGS will be decreased by $18000 in 2017, this will be only for 2017 because policy change will be from 2017 not from 2016.
3. Machine depreciation in adjusted in both years in 2016 and 2017
4. Accrued expenses is adjusted in both in year 2016 and 2017, and it will increase expenses in 2016 and decrease in 2016
5. Point no 4 adjustment is not considered of revised depreciation because it will be effective from 2018. and question is also demanding adjustment from 1 to 3.
12/31/2016 Supply Exps. 7000 Accrued Supply Exps. 7000 (Accrued exps for 2016 accounted) 01/01/2017 Accrued Expenses 7000 Cash 7000 (Accrued expenses assumed to be paid on first day of 2017) 12/31/16 Depreciation 28800 Accumulated DEpreciation 28800 (Dep on machine for 2016) 12/31/17 Depreciation 17280 Accumulated Depreciation 17280 (depreciation on machine for 2017) 12/31/17 Inventory 18000 COGS 18000 (inventory value increased in 2017 due to change in inventory valuation method for year 2017)Related Questions
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