CH 3 Examples, Part 2

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Feb 20, 2024

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Chapter 3 Examples, Part II Example (HW11) On December 31, 2020, Alexa Company is preparing adjusting entries for its annual year-end. The following situations confront the company. 1. Equipment #101 with a cost of $120,000 was purchased on January 1, 2016. It is being depreciated on a straight- line basis over an estimated useful life of 10 years with no residual value. At December 31, 2020, it has been determined that the total useful life should have been 12 years instead of 10. 2. Equipment #502 with a cost of $90,000 was purchased on January 1, 2017. It is being depreciated on a straight- line basis over an estimated useful life of 6 years with no residual value. At December 31, 2020, it was discovered that no depreciation had been recorded on this equipment for 2017 or 2018, but it was recorded for 2019. 3. In 2020, Alexa decided to change inventory methods from the weighted-average method to the FIFO method. Net income reported in 2019 applying the weighted-average method was $133,000. If FIFO had been applied in 2019, net income would have been $175,000. a. For equipment #101, provide the required adjusting entry for depreciation expense at December 31, 2020. b. For equipment #502, provide the required adjusting entry for depreciation expense at December 31, 2020 and any correcting entry. Ignore income taxes. c. For equipment #502, provide any necessary correcting entry. Ignore income taxes. d. In reporting comparative income statements in 2020, what net income amount is presented for 2019? 1

Example (HW9) Assume Flash Corp. from Example (HW3) also had an unrealized holding gain on securities of $4,000, net of tax and a foreign currency translation loss of $1,500, net of tax. Prepare a statement of comprehensive income, using the two- statement format. Ignore earnings per share. Note, you do not need to prepare the Income Statement again, as that was done in Example (HW3); however, the Comprehensive Income Statement would follow directly beneath the Income Statement. Flash Corp. Comprehensive Income Statement For the Year Ended December 31, 2020 Net Income Unrealized Holding Gain, net of tax Foreign Currency Translation Adjustment, net of tax Comprehensive Income 2

Example (HW10) Use net income and comprehensive income information for Flash Corp., presented in Examples HW3 and HW9 above. Additionally, in 2019, the first year of operations, the company reported net income of $312,000 and declared and paid dividends of $12,000. No other items affected retained earnings in 2019. On December 31, 2019, Flash Corp. had the following balances in stockholders’ equity accounts (other than retained earnings): common stock, $500,000 (credit); accumulated other comprehensive income $9,800 (credit). During 2020, the company declared and paid a cash dividend of $11,000. Also, in 2020, the company discovered that its 2019 depreciation expense was understated by $100,000 before taxes. Assume a tax rate of 25%. Prepare a statement of stockholders’ equity for the year ended December 31, 2010. Flash Corp. Statement of Stockholders' Equity For the Year Ended December 31, 2020 Common Stock Retained Earnings Accumulated Other Comprehensive Income Total Beginning Balance Prior Period Adjustment Net Income Dividends Other Comprehensive Income: Unrealized Holding Gain, net of tax Foreign Currency Translation Adjustment, net of tax Ending Balance 3

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