Problem 22-4 Penn Company is in the process of adjusting and correcting its book

Question

Problem 22-4 Penn Company is in the process of adjusting and correcting its books at the end of 2017. In reviewing its records, the following information is compilled. Penn has failed to accrue sales commissions payable at the end of each of the last 2 years, as follows. 1. December 31, 2016 December 31, 2017 $3,500 $2,500 2. In reviewing the December 31, 2017, inventory, Penn discovered errors in its inventory-taking procedures that have caused inventories for the last 3 years to be incorrect, as follows December 31, 2015 December 31, 2016 December 31, 2017 16,000 $19,000 $6,700 Understated Understated Penn has already made an entry that established the incorrect December 31, 2017, inventory amount 3. At December 31, 2017, Penn decided to change the depreciation method on its office equipment from double-declining-balance to straight-line. The equipment had an original cost of $100,000 when purchased on January 1, 2015. It has a 10-year useful life and no salvage value. Depreciation expense recorded prior to 2017 under the double-declining-balance method was $36,000. Penn has already recorded 2017 depreciation expense of % 12,800 using the double-decining-balance method. Before 2017, Penn accounted for its income from long-term construction contracts on the completed-contract basis. Early in 2017, Penn changed to the percentage-of-completion basis for accounting purposes. It continues to use the completed-contract method for tax purposes. Income for 2017 has been recorded using the percentage-of-completion method. The following information is available. 4. Pretax Income Prior to 2017 2017 Percentage-of-Completion Completed-Contract $105,000 20,000 $150,000 60,000 3/28/2018 changes. The books are still open for 2017. The inconse tax rate is 40%. Penn has not yet recorded its 2017 income tax expense and payable amounts so current-year tax effects may be ignored. Prior-year tax effects must be considered in item 4. (Credit account tities are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts) ca Debit Credit No. Account Titles and Explanation 1. 2.

Explanation / Answer

1.

2.

3.

4.

Retained earnings 3500      Sales commissions payable 2500      Sales commissions expense 1000

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