The first audit of the books of Ivanhoe Company was made for the year ended December 31, 2022. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: At the beginning of 2020, the company purchased a machine for $620,000 (residual value of $62,000) that had a useful life of 5 years. The bookkeeper used straight-line depreciation but failed to deduct the residual value in computing the depreciation base for the 3 years. 1. 2. At the end of 2021, the company failed to accrue sales salaries of $45,000. A tax lawsuit that involved the year 2020 was settled late in 2022. It was determined that the company owed an additional $65,000 in taxes related to 2020. The company did not record a liability in 2020 or 2021 because the possibility of loss was considered remote, Ivanhoe debited the $65,000 to a loss account in 2022 and credited Cash for the same amount. 3. 4. Ivanhoe Company purchased a copyright from another company early in 2020 for $55,000. Ivanhoe had not amortized the copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years. In 2022, the company wrote off $85,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings and credited to Inventory. 5. Prepare the journal entries necessary in 2022 to correct the books, assuming that the books have not been closed. Disregard effects of corrections on income tax. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places, e.g, 1250.)
The first audit of the books of Ivanhoe Company was made for the year ended December 31, 2022. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: At the beginning of 2020, the company purchased a machine for $620,000 (residual value of $62,000) that had a useful life of 5 years. The bookkeeper used straight-line depreciation but failed to deduct the residual value in computing the depreciation base for the 3 years. 1. 2. At the end of 2021, the company failed to accrue sales salaries of $45,000. A tax lawsuit that involved the year 2020 was settled late in 2022. It was determined that the company owed an additional $65,000 in taxes related to 2020. The company did not record a liability in 2020 or 2021 because the possibility of loss was considered remote, Ivanhoe debited the $65,000 to a loss account in 2022 and credited Cash for the same amount. 3. 4. Ivanhoe Company purchased a copyright from another company early in 2020 for $55,000. Ivanhoe had not amortized the copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years. In 2022, the company wrote off $85,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings and credited to Inventory. 5. Prepare the journal entries necessary in 2022 to correct the books, assuming that the books have not been closed. Disregard effects of corrections on income tax. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places, e.g, 1250.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The first audit of the books of Ivanhoe Company was made for the year ended December 31, 2022. In examining the books, the auditor
found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are:
At the beginning of 2020, the company purchased a machine for $620,000 (residual value of $62,000) that had a useful life of
5 years. The bookkeeper used straight-line depreciation but failed to deduct the residual value in computing the depreciation
base for the 3 years.
1.
2.
At the end of 2021, the company failed to accrue sales salaries of $45,000.
A tax lawsuit that involved the year 2020 was settled late in 2022. It was determined that the company owed an additional
$65,000 in taxes related to 2020. The company did not record a liability in 2020 or 2021 because the possibility of loss was
considered remote, Ivanhoe debited the $65,000 to a loss account in 2022 and credited Cash for the same amount.
3.
Ivanhoe Company purchased a copyright from another company early in 2020 for $55,000. Ivanhoe had not amortized the
copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years.
4.
In 2022, the company wrote off $85,000 of inventory considered to be obsolete; this loss was charged directly to Retained
Earnings and credited to Inventory.
5.
Prepare the journal entries necessary in 2022 to correct the books, assuming that the books have not been closed. Disregard effects of
corrections on income tax. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places, e.g, 1250.)
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