For the three consecutive years, the River Company failed to recognize accruals, prepayments, and other transactions in its records. Reported profits and a listing of errors appear below. 2018 2019 2020 2018 2019 2020 Reported profit (loss) 490,000 670,000 (320,000) a. Failed to record accrued expenses 34,000 28,000 43,000 b. Overstated ending inventories 63,000 28,000 36,000 c. Failed to record accrued interest on notes receivable 12,000 6,000 8,000 d. Failed to recognize unearned rent 24,000 20,000 18,000 e. Failed to record purchases on account; purchases were recorded when paid in the subsequent year; merchandise properly included in ending inventory 25,000 20,000 f. Repairs and maintenance incurred during the year capitalized as part of asset cost. Full-year depreciation at an annual rate of 10% is provided in the year that the asset is recognized 120,000 80,000 g. Failed to recognize prepaid insurance at yearend. 4,800 6,200 7,800 a. Prepare a schedule to correct the reported profit for each year b. Prepare the necessary correcting entries in 2020, assuming that the books for 2020 are still open
For the three consecutive years, the River Company failed to recognize accruals, prepayments, and other transactions in its records. Reported profits and a listing of errors appear below. 2018 2019 2020 2018 2019 2020 Reported profit (loss) 490,000 670,000 (320,000) a. Failed to record accrued expenses 34,000 28,000 43,000 b. Overstated ending inventories 63,000 28,000 36,000 c. Failed to record accrued interest on notes receivable 12,000 6,000 8,000 d. Failed to recognize unearned rent 24,000 20,000 18,000 e. Failed to record purchases on account; purchases were recorded when paid in the subsequent year; merchandise properly included in ending inventory 25,000 20,000 f. Repairs and maintenance incurred during the year capitalized as part of asset cost. Full-year depreciation at an annual rate of 10% is provided in the year that the asset is recognized 120,000 80,000 g. Failed to recognize prepaid insurance at yearend. 4,800 6,200 7,800 a. Prepare a schedule to correct the reported profit for each year b. Prepare the necessary correcting entries in 2020, assuming that the books for 2020 are still open
Chapter1: Financial Statements And Business Decisions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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For the three consecutive years, the River Company failed to recognize accruals, prepayments, and other transactions in
its records. Reported profits and a listing of errors appear below.
2018 2019 2020
| 2018 | 2019 | 2020 | |
| Reported |
490,000 | 670,000 | (320,000) |
| a. Failed to record accrued expenses | 34,000 | 28,000 | 43,000 |
| b. Overstated ending inventories | 63,000 | 28,000 | 36,000 |
| c. Failed to record accrued interest on notes receivable | 12,000 |
6,000 |
8,000 |
| d. Failed to recognize unearned rent | 24,000 | 20,000 | 18,000 |
| e. Failed to record purchases on account; purchases were recorded when paid in the subsequent year; merchandise properly included in ending inventory | 25,000 | 20,000 | |
| f. Repairs and maintenance incurred during the year capitalized as part of asset cost. Full-year provided in the year that the asset is recognized |
120,000 | 80,000 | |
| g. Failed to recognize prepaid insurance at yearend. | 4,800 | 6,200 | 7,800 |
a. Prepare a schedule to correct the reported profit for each year
b. Prepare the necessary correcting entries in 2020, assuming that the books for 2020 are still open
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