Recording a Change in Estimate, an Error Correction, and a Change in Accounting Principle On December 31, Year 4, Alexa Company is preparing adjusting entries for its annual year-end. The following issues confront the company. 1. Equipment # 101 with a cost of $12,320 was purchased three years earlier on January 1, Year 2. It is being depreciated on a straight-line basis over an estimated useful life of 10 years with no residual value. At December 31, Year 4, it has been determined that the estimated total useful life is 6 years instead of 10. 2. Equipment #502 with a cost of $7,280 was purchased four years earlier on January 1, Year 1. It is being depreciated on a straight-line basis over an estimated useful life of seven years with no residual value. At December 31, Year 4, it was discovered that no depreciation had been recorded on this equipment for Year 1 or Year 2, but it was recorded for Year 3. 3. In Year 4, Alexa decided to change Inventory methods from the weighted-average method to the FIFO method. Net income reported in Year 3 applying the weighted-average method was $152,000. If FIFO had been applied in Year 3, net income would have been $161,600. a. For equipment # 101, provide the required adjusting entry for depreciation expense at December 31, Year 4. . Note: Round answers to the nearest whole dollar. Date Dec. 31, Year 4 Date Dec. 31, Year 4 Date Dec. 31. Year 4 Account Name To record deprecalation. $0 b. For equipment #502, provide the required adjusting entry for depreciation expense at December 31, Year 4. Account Name x To record deprecalation. Account Name To record correcting entry. V V Dr. V Dr. 0 c. For equipment #502, provide any necessary correcting entry. Ignore income taxes. Dr. 0 0 Cr. 0 0 Cr. 0x Cr. 0x 0x d. In reporting comparative Income statements in Year 4, what net income amount is presented for Year 3? 0x 0x 4
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
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