Conrad Playground Supply underwent a restructuring in 2021. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries are prepared. a. Additional computers were acquired at the beginning of 2019 and added to the company's office network. The $45,000 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method. b. Two weeks prior to the audit, the company paid $17,000 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later. c. On December 31, 2020, merchandise inventory was understated by $78,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system. d. Two years earlier, the company recorded a 4% stock dividend (2,000 common shares, $1 par) as follows: Retained earnings Common stock 2,000 2,000 The shares had a market price at the time of $12 per share. e. At the end of 2020, the company failed to accrue $104,000 of interest expense that accrued during the last four months of 2020 on bonds payable. The bonds, which were issued at face value, mature in 2025. The following entry was recorded on March 1, 2021,
Conrad Playground Supply underwent a restructuring in 2021. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries are prepared. a. Additional computers were acquired at the beginning of 2019 and added to the company's office network. The $45,000 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method. b. Two weeks prior to the audit, the company paid $17,000 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later. c. On December 31, 2020, merchandise inventory was understated by $78,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system. d. Two years earlier, the company recorded a 4% stock dividend (2,000 common shares, $1 par) as follows: Retained earnings Common stock 2,000 2,000 The shares had a market price at the time of $12 per share. e. At the end of 2020, the company failed to accrue $104,000 of interest expense that accrued during the last four months of 2020 on bonds payable. The bonds, which were issued at face value, mature in 2025. The following entry was recorded on March 1, 2021,
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![**Title: Audit Findings and Accounting Corrections for Conrad Playground Supply**
Conrad Playground Supply underwent a significant restructuring in 2021. During the restructuring process, a comprehensive internal audit was conducted. The audit revealed several important accounting errors that needed correction. Below is a summary of the findings and the necessary accounting adjustments:
**Audit Findings:**
a. **Computer Acquisition Error:**
- Additional computers were acquired at the beginning of 2019 and added to the company's office network.
- The cost of these computers was incorrectly recorded as maintenance expense rather than as a capital asset.
- Total cost recorded: $45,000.
- Correct accounting requires capitalization and depreciation over their five-year useful life with no salvage value, using the straight-line method.
b. **Error in Expense Recording:**
- The company paid $17,000 for assembly tools, which was mistakenly recorded as office supplies.
- The error was discovered a week later.
c. **Inventory Understatement:**
- As of December 31, 2020, merchandise inventory was understated by $78,000 due to an error in the physical inventory count.
- The company uses the periodic inventory system.
d. **Stock Dividend Overlook:**
- Two years prior to the audit, a 4% stock dividend (2,000 common shares, $1 par value) was declared but not properly accounted for in the records.
\[
\begin{array}{c|c}
\text{Retained earnings} & 2,000 \\
\text{Common stock} & 2,000 \\
\end{array}
\]
- The shares had a market price of $12 each at that time.
e. **Interest Expense Accrual Omittance:**
- At the end of 2020, the company did not accrue $104,000 of interest expense related to bonds payable for the last four months of 2020.
- The bonds were issued at face value, maturing in 2025.
- The interest payment schedule is semiannual, on March 1 and September 1. An entry was recorded on March 1, 2021:
\[
\begin{array}{c|c}
\text{Interest expense} & 156,000 \\
\text{Cash} & 156,000 \\
\end{array}
\]
f. **Insurance Expense Recognition:**
-](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F81f3c13b-c916-4610-ab84-ceb3c5d340e8%2F304efba4-4c1f-4cd7-8b8b-decf4a4d892b%2Fbpukgn8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Title: Audit Findings and Accounting Corrections for Conrad Playground Supply**
Conrad Playground Supply underwent a significant restructuring in 2021. During the restructuring process, a comprehensive internal audit was conducted. The audit revealed several important accounting errors that needed correction. Below is a summary of the findings and the necessary accounting adjustments:
**Audit Findings:**
a. **Computer Acquisition Error:**
- Additional computers were acquired at the beginning of 2019 and added to the company's office network.
- The cost of these computers was incorrectly recorded as maintenance expense rather than as a capital asset.
- Total cost recorded: $45,000.
- Correct accounting requires capitalization and depreciation over their five-year useful life with no salvage value, using the straight-line method.
b. **Error in Expense Recording:**
- The company paid $17,000 for assembly tools, which was mistakenly recorded as office supplies.
- The error was discovered a week later.
c. **Inventory Understatement:**
- As of December 31, 2020, merchandise inventory was understated by $78,000 due to an error in the physical inventory count.
- The company uses the periodic inventory system.
d. **Stock Dividend Overlook:**
- Two years prior to the audit, a 4% stock dividend (2,000 common shares, $1 par value) was declared but not properly accounted for in the records.
\[
\begin{array}{c|c}
\text{Retained earnings} & 2,000 \\
\text{Common stock} & 2,000 \\
\end{array}
\]
- The shares had a market price of $12 each at that time.
e. **Interest Expense Accrual Omittance:**
- At the end of 2020, the company did not accrue $104,000 of interest expense related to bonds payable for the last four months of 2020.
- The bonds were issued at face value, maturing in 2025.
- The interest payment schedule is semiannual, on March 1 and September 1. An entry was recorded on March 1, 2021:
\[
\begin{array}{c|c}
\text{Interest expense} & 156,000 \\
\text{Cash} & 156,000 \\
\end{array}
\]
f. **Insurance Expense Recognition:**
-
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