i) Indicate and explain the effect of any errors on the net income figure reported on the income statement for the year ending December 31, 2019, and the retained earnings figure reported on the statement of financial position at December 31, 2020. Assume all amounts are material and ignore income tax effects. Using the following format, enter the appropriate dollar amounts in the appropriate columns. Consider each item independent of the other items. It is not necessary to total the columns on the grid.
While reviewing the company’s records for 2019 and 2020, Ms. Croft discovered that no adjustments were made for the following items.
1. Interest income of $14,100 was not accrued at the end of 2019. It was recorded
when received in February 2020.
2. A computer costing $4000 was expensed when purchased on July 1, 2019. It is
expected to have a 4 year life with no residual value. The company typically uses
straight line
3. Research costs of $33,000 were incurred early in 2019. They were capitalized and
were to be amortized over a 3-year period. Amortization of $11,000 was recorded
for 2019 and $11,000 for 2020.
4. On January 2, 2019, Jolie Inc. leased a building for 5 years at a monthly rental of
$8,000. On that date, the company paid the following amounts, which were
expensed when paid.
Security deposit $20,000
First month’s rent 8,000
Last month’s rent 8,000 $36,000
5. The company received $36,000 from a customer at the beginning of 2019 for
services that it is to perform evenly over a 3-year period beginning in 2019. None
of the amount received was reported as unearned revenue at the end of 2019.
6. Merchandise inventory costing $18,200 was in the warehouse at December 31,
2019, but was incorrectly omitted from the physical count at that date. The
company uses the periodic inventory method.
Instructions
(i) Indicate and explain the effect of any errors on the net income figure reported on the income statement for the year ending December 31, 2019, and the
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