In examining the books for Hilroy Limited, an auditor, completing the audit for December 31, 2023 found that certain items had been overlooked or might have been incorrectly handled in the past:1. A tax lawsuit related to the year 2021 was settled in 2023. It was determined that the company owed an additional $92,000 in tax related to 2021. The company did not record a liability in 2021 or 2022 because the possibility of losing the lawsuit was considered remote. Management recorded an adjustment to retained earnings in 2023 as a correction of a prior period error.2. Management accrued production salaries at December 31, 2022 of $87,000. The amount should have been $46,000.3. On January 15, 2021, the company purchased equipment with a cost of $225,000, useful life of 6 years, and a residual value of $40,000. The company uses straight-line depreciation. Depreciation expense was calculated without including the residual value in 2021, 2022 and 2023.Instructions:a. Identify what type of change for each of the 3 items and the appropriate accounting treatment required.b. Prepare journal entries in 2023 (assuming the books for 2023 are not closed) to correct the books where necessary. The tax rate for the company is 25%.
In examining the books for Hilroy Limited, an auditor, completing the audit for December 31, 2023 found that certain items had been overlooked or might have been incorrectly handled in the past:
1. A tax lawsuit related to the year 2021 was settled in 2023. It was determined that the company owed an additional $92,000 in tax related to 2021. The company did not record a liability in 2021 or 2022 because the possibility of losing the lawsuit was considered remote. Management recorded an adjustment to
2. Management accrued production salaries at December 31, 2022 of $87,000. The amount should have been $46,000.
3. On January 15, 2021, the company purchased equipment with a cost of $225,000, useful life of 6 years, and a residual value of $40,000. The company uses straight-line
Instructions:
a. Identify what type of change for each of the 3 items and the appropriate accounting treatment required.
b. Prepare
Step by step
Solved in 2 steps
