onsidered 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
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
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.
December 31, 2018 Understated $16,000
December 31, 2019 Understated $19,000
December 31, 2020 Overstated $ 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
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-decliningbalance 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-ofcompletion 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
Percentage-of-Completion Cost-Recovery
Prior to 2020 $150,000 $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.
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In question 1 why were the 19,000 and 11,000 payables amount not recorded and why credit expense with the 8,000
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