Homework Help is Here – Start Your Trial Now!
Business
Accounting
Answer item 5

Answer item 5

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

Answer item 5

Ridley Corporation is in the process of adjusting and correcting its books at the end of 2020. In reviewing its records, the following information was discovered. Prepare the journal entries necessary at December 31, 2020, to record the corrections and changes. The books are still open for 2020. The income tax rate is 40%. The company has not yet recorded its 2020 income tax expense and payable amounts so current-year tax effects may be ignored. Prior-year tax effects must be considered in item 4. 1. The company did not accrue sales commissions payable at the end of each of the last 2 years, as follows. December 31, 2019 $19,000 December 31, 2020 $11,000 2. In reviewing the December 31, 2020, inventory, Ridley discovered errors in its inventory taking procedures that have caused inventories for the last 3 years to be incorrect, as follows. Understated December 31, 2018 December 31, 2019 December 31, 2020 Understated Overstated $16,000 $19,000 $ 6,700 The company has already made an entry that established the incorrect December 31, 2020, inventory amount. 3. At December 31, 2020, Ridley 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, 2018. It has a 10-year useful life and no residual value. Depreciation expense recorded prior to 2020 under the double-declining- balance method was $36,000. The company has already recorded 2020 depreciation expense of $12,800 using the double-declining-balance method. 4. Before 2020, Ridley accounted for its income from long-term construction contracts on the cost-recovery basis. Early in 2020, the company changed to the percentage-of- completion basis for accounting purposes. It continues to use the cost-recovery method for tax purposes. Income for 2020 has been recorded using the percentage-of-completion method. Pretax Income from Cost-Recovery Percentage-of-Completion $150,000 Prior to 2020 $105,000 2020 60,000 20,000 5. A collection of $5,600 on account from a customer received on December 31, 2020, was not recorded until January 2, 2021.
Transcribed Image Text:Ridley Corporation is in the process of adjusting and correcting its books at the end of 2020. In reviewing its records, the following information was discovered. Prepare the journal entries necessary at December 31, 2020, to record the corrections and changes. The books are still open for 2020. The income tax rate is 40%. The company has not yet recorded its 2020 income tax expense and payable amounts so current-year tax effects may be ignored. Prior-year tax effects must be considered in item 4. 1. The company did not accrue sales commissions payable at the end of each of the last 2 years, as follows. December 31, 2019 $19,000 December 31, 2020 $11,000 2. In reviewing the December 31, 2020, inventory, Ridley discovered errors in its inventory taking procedures that have caused inventories for the last 3 years to be incorrect, as follows. Understated December 31, 2018 December 31, 2019 December 31, 2020 Understated Overstated $16,000 $19,000 $ 6,700 The company has already made an entry that established the incorrect December 31, 2020, inventory amount. 3. At December 31, 2020, Ridley 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, 2018. It has a 10-year useful life and no residual value. Depreciation expense recorded prior to 2020 under the double-declining- balance method was $36,000. The company has already recorded 2020 depreciation expense of $12,800 using the double-declining-balance method. 4. Before 2020, Ridley accounted for its income from long-term construction contracts on the cost-recovery basis. Early in 2020, the company changed to the percentage-of- completion basis for accounting purposes. It continues to use the cost-recovery method for tax purposes. Income for 2020 has been recorded using the percentage-of-completion method. Pretax Income from Cost-Recovery Percentage-of-Completion $150,000 Prior to 2020 $105,000 2020 60,000 20,000 5. A collection of $5,600 on account from a customer received on December 31, 2020, was not recorded until January 2, 2021.
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS