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 journal entries necessary at December 31, 2020, to record the corrections and changes. 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 December 31, 2019 December 31, 2020 Understated $16,000 Understated $19,000 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 depreciation method on its office 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-declining- balance method was $36,000. The company has already recorded 2020 depreciation expense of $12,800 using the double-declining-balance method.

FINANCIAL ACCOUNTING

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ISBN:9781259964947

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Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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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-of-
completion 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
$105,000
20,000
$150,000
60,000
Prior to 2020
2020
5. A collection of $5,600 on account from a customer received on December 31, 2020,
was not recorded until January 2, 2021.

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
journal entries necessary at December 31, 2020, to record the corrections and changes.
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
December 31, 2019
December 31, 2020
Understated $16,000
Understated $19,000
$ 6,700
Overstated
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 depreciation method on its office
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-declining-
balance method was $36,000. The company has already recorded 2020 depreciation
expense of $12,800 using the double-declining-balance method.

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Hey,

Why debit the COGS with the 25700 and not inventory of the $19,000. Why was the $19,000 expensed by debiting COGS?

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Follow-up Question

Hello, in the above question 3 on the change in policy on the depreciation why not calculate the depreciation expense for the year-end December 31, 2018, and 2019 which is 100,000 divided by 10 = 10,000 for 2 years = 20,000. Then subtract the 36,000 -20,000 = 16,000. Reverse the 12,800 which was booked using the double declining balance method. and record the correct amount to accumulated depreciation and depreciation expense.

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