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Brief Exercise 22-1
At the beginning of 2017, Bridgeport Construction Company changed from the completed-contract method to recognizing revenue over time
(percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method for tax
purposes. For years prior to 2017, pretax income under the two methods was as follows: percentage-of-completion $124,800, and
completed-contract $84,500. The tax rate is 30%. Prepare Bridgeport’s 2017 journal entry to record the change in accounting principle. (Credit account titles 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 0 for the amounts.)
Account Titles and Explanation Debit Credit ognizing revenue over time
contract method for tax
pletion $124,800, and tomatically indented when
enter 0 for the amounts.) Brief Exercise 22-4 Cullumber Company changed depreciation methods in 2017 from double-declining-balance to straight-line.
Depreciation prior to 2017 under double-declining-balance was $86,500, whereas straight-line depreciation
prior to 2017 would have been $52,300. Cullumber’s depreciable assets had a cost of $260,200 with a
$42,500 salvage value, and an 8-year remaining useful life at the beginning of 2017. Prepare the 2017 journal entry related to Cullumber’s depreciable assets (Equipment). (Credit account titles
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 0 for the amounts.)
Account Titles and Explanation Debit Credit Brief Exercise 22-7 At January 1, 2017, Skysong Company reported retained earnings of $1,879,000. In 2017, Skysong discovered that 2016
depreciation expense was understated by $386,000. In 2017, net income was $894,000 and dividends declared were
$227,000. The tax rate is 40%. Prepare a 2017 retained earnings statement for Skysong Company. SKYSONG COMPANY
Retained Earnings Statement $ : : : $ kysong discovered that 2016
nd dividends declared were ny. Brief Exercise 22-8
Indicate the effect—Understate, Overstate, No Effect—that each of the
following errors has on 2017 net income and 2018 net income. 2017
(a) Equipment purchased in
2015 was expensed. (b) Wages payable were not
recorded at 12/31/17. (c) Equipment purchased in
2017 was expensed. (d) 2017 ending inventory was
overstated. (e) Patent amortization was not
recorded in 2018. 2018 Exercise 22-2 Sweet Company began operations on January 1, 2015, and uses the average-cost method of pricing inventory. Manage
contemplating a change in inventory methods for 2018. The following information is available for the years 2015–2
Net Income Computed Using FIFO
Method Average-Cost Method
2015 $15,860 $18,880 2016 17,980 20,820 2017 20,130 25,190 (a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2018.
account titles are automatically indented when amount is entered. Do not indent manually. If no entry is r
select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation Debit Credit (b) Determine net income to be reported for 2015, 2016, and 2017, after giving effect to the change in accounting princi
Net
Income
2015 $ 2016 $ 2017 $ (c) Assume Sweet Company used the LIFO method instead of the average cost method during the
years 2015–2017. In 2018, Sweet changed to the FIFO method. Prepare the journal entry necessary to
record the change in principle. (Credit account titles 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 0 for the amounts.)
Account Titles and Explanation Debit Credit of pricing inventory. Management is
ailable for the years 2015–2017.
LIFO Method
$12,000
14,050
17,060 to the FIFO method in 2018. (Credit
manually. If no entry is required,
amounts.) change in accounting principle. Exercise 22-5 (Part Level Submission) Presented below are income statements prepared on a LIFO and FIFO basis for Kingbird Company, which
started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory
and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance
with the requirements of GAAP. Kingbird’s profit-sharing agreement with its employees indicates that the
company will pay employees 10% of income before profit-sharing. Income taxes are ignored.
LIFO Basis FIFO Basis 2017
Sales
Cost of goods sold 2016 $2,960 2017 $2,960 1,110 $2,960 970 1,130 Operating expenses 990 990 990 Income before profit-sharing 860 1,000 840 86 100 90 Profit-sharing expense
Net income $774 $900 $750 If comparative income statements are prepared, what net income should Kingbird report in 2016 and 2017? (Round ans
2017
Net income $ 2016
$ rd Company, which
pricing its inventory
mputed in accordance
s indicates that the
s are ignored. s
2016
$2,960
910
990
1,060
100
$960 in 2016 and 2017? (Round answers to 0 decimal places, e.g. 125.) Exercise 22-11 Sage Co. purchased a equipment on January 1, 2015, for $511,500. At that time, it was estimated t
year life and no salvage value. On December 31, 2018, the firm’s accountant found that the entry
omitted in 2016. In addition, management has informed the accountant that the company plans to
starting with the year 2018. At present, the company uses the sum-of-the-years’-digits metho Prepare the general journal entries that should be made at December 31, 2018, to record these e
account titles are automatically indented when amount is entered. Do not indent manua
"No Entry" for the account titles and enter 0 for the amoun
Date Account Titles and Explanation Dec. 31, 2018
(To correct for the omission of depreciation expense in 2016.)
Dec. 31, 2018
(To record depreciation expense for 2018.) Debit Credit hat time, it was estimated that the equipment would have a 10untant found that the entry for depreciation expense had been
that the company plans to switch to straight-line depreciation,
m-of-the-years’-digits method for depreciating equipment. 31, 2018, to record these events. (Ignore tax effects.) (Credit
ed. Do not indent manually. If no entry is required, select
d enter 0 for the amounts.) Exercise 22-16
You have been engaged to review the financial statements of Cullumber Corporation. In the course
of your examination, you conclude that the bookkeeper hired during the current year is not doing
a good job. You notice a number of irregularities as follows. 1 Year-end wages payable of $3,640 were not recorded because the bookkeeper thought
that “they were immaterial.” 2 Accrued vacation pay for the year of $28,600 was not recorded because the
bookkeeper “never heard that you had to do it.” Insurance for a 12-month period purchased on November 1 of this year was charged to
insurance expense in the amount of $2,832 because “the amount of the check is about
3
the same every year.” Reported sales revenue for the year is $2,129,540. This includes all sales taxes
collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to
the state’s Department of Revenue, the Sales Tax Expense account is debited. The
bookkeeper thought that “the sales tax is a selling expense.” At the end of the current
4
year, the balance in the Sales Tax Expense account is $102,240.
Prepare the necessary correcting entries, assuming that Cullumber uses a calendaryear basis. The books for the current year have not been closed. (Credit account
titles 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 0 for the amounts.)
No. Account Titles and Explanation 1
2
3
4
(To record the sales taxes due.) (To correct prior entry.) Debit Credit Exercise 22-17
The reported net incomes for the first 2 years of Novak Products, Inc.,
were as follows: 2017, $137,400; 2018, $181,200. Early in 2019, the
following errors were discovered.
Depreciation of equipment for 2017 was
1 overstated $16,900.
Depreciation of equipment for 2018 was
2 understated $40,400.
December 31, 2017, inventory was
3 understated $54,200.
December 31, 2018, inventory was
4 overstated $17,500. Prepare the correcting entry necessary when these errors are
discovered. Assume that the books are closed. (Ignore income tax
considerations.) (Credit account titles 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 0 for
the amounts.)
Account Titles and Explanation Debit Credit Exercise 22-20 The before-tax income for Tamarisk Co. for 2017 was $107,000 and $70,100 for 2018. However, the accountant noted
errors had been made: 1
2 3
Interest
Expense Cash 4 Prepare a schedule showing the determination of corrected income before taxes for 2017 and 2018. (Enter negative
either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round answers to
e.g. 125.) Exercise 22-20 The before-tax income for Tamarisk Co. for 2017 was $107,000 and $70,100 for 2018. However, the accountant noted that the foll
errors had been made: Sales for 2017 included amounts of $37,100 which had been received in cash during 2017, but for
which the related products were delivered in 2018. Title did not pass to the purchaser until 2018.
The inventory on December 31, 2017, was understated by $8,700. The bookkeeper in recording interest expense for both 2017 and 2018 on bonds payable made the
following entry on an annual basis.
16,200 The bonds have a face value of $270,000 and pay a stated interest rate of 6%. They were issued at
a discount of $15,000 on January 1, 2017, to yield an effective-interest rate of 7%. (Assume that
the effective-yield method should be used.) Ordinary repairs to equipment had been erroneously charged to the Equipment account during
2017 and 2018. Repairs in the amount of $9,200 in 2017 and $10,200 in 2018 were so charged.
The company applies a rate of 10% to the balance in the Equipment account at the end of the year
in its determination of depreciation charges. Prepare a schedule showing the determination of corrected income before taxes for 2017 and 2018. (Enter negative amounts u
either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round answers to 0 decimal p
e.g. 125.)
Income Before Tax
Corrections: Corrected Income Before Tax he accountant noted that the following 16,200 8. (Enter negative amounts using
Round answers to 0 decimal places,
2017 2018 $ $ $ $ Exercise 22-22
On January 1, 2017, Larkspur Co. purchased 23,000 shares (a 10% interest) in Elton John Corp. for
$1,430,000. At the time, the book value and the fair value of John’s net assets were $13,800,000. On July 1, 2018, Larkspur paid $3,220,000 for 46,000 additional shares of John common stock, which
represented a 20% investment in John. The fair value of John’s identifiable assets net of liabilities was
equal to their carrying amount of $15,100,000. As a result of this transaction, Larkspur owns 30% of
John and can exercise significant influence over John’s operating and financial policies. (Any excess fair
value is attributed to goodwill.) John reported the following net income and declared and paid the following dividends.
Net Income
Year ended 12/31/17 Dividend per Share $770,000 None Six months ended 6/30/18 460,000 None Six months ended 12/31/18 820,000 $1.55 Determine the ending balance that Larkspur Co. should report as its investment in John Corp. at the end
of 2018.
Investment in Elton John Corp. $
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