Travis Inc. has just completed its financial statements for the reporting year ended December 31 of Year 5. Pretax income is $160,000. The accounts have not been closed for December 31 of Year 5. Further consideration and review of the records revealed the following items related to the Year 5 statements. 1. On January 1 of Year 1, a machine was acquired that cost $10,000. The estimated useful life was 10 years, and the residual value was $2,000. At the time of acquisition, the full cost of the machine was incorrectly debited to the land account. The company uses straight-line depreciation. 2. On January 1 of Year 3, a long-term investment of $18,000 was made by purchasing a $20,000, 8% bond of FDC Corporation. The investment account was debited for $18,000. Each year, starting on December 31 of Year 3, the company has recognized and reported investment revenue on these bonds of $1,600. The bonds mature in 10 years from the date of purchase. Assume that any amortization would follow the straight-line method and that Travis intends to hold the bonds to maturity. 3. The Year 4 ending inventory was overstated by $7,000 (periodic inventory system). 4. An $11,000 credit purchase of merchandise occurred on December 18 of Year 4. Because the merchandise was held on December 31 of Year 4, it was included in the Year 4 ending inventory. The purchase was recorded on January 18 of Year 5, when the invoice was paid (periodic inventory system). Ref. 1. Account 2. Dr. Cr. > > > 0 0 0 0 く 0 0 く 0 0 0 0 To correct error and record current year depreciation. To correct error. 3. 4. To correct error. 0 0 く 0 0 ✓ 0 0 > > > > To correct error. b. Compute the correct pretax income for Year 5. $ 0 0 0 0 0 0 0 0 0
Travis Inc. has just completed its financial statements for the reporting year ended December 31 of Year 5. Pretax income is $160,000. The accounts have not been closed for December 31 of Year 5. Further consideration and review of the records revealed the following items related to the Year 5 statements. 1. On January 1 of Year 1, a machine was acquired that cost $10,000. The estimated useful life was 10 years, and the residual value was $2,000. At the time of acquisition, the full cost of the machine was incorrectly debited to the land account. The company uses straight-line depreciation. 2. On January 1 of Year 3, a long-term investment of $18,000 was made by purchasing a $20,000, 8% bond of FDC Corporation. The investment account was debited for $18,000. Each year, starting on December 31 of Year 3, the company has recognized and reported investment revenue on these bonds of $1,600. The bonds mature in 10 years from the date of purchase. Assume that any amortization would follow the straight-line method and that Travis intends to hold the bonds to maturity. 3. The Year 4 ending inventory was overstated by $7,000 (periodic inventory system). 4. An $11,000 credit purchase of merchandise occurred on December 18 of Year 4. Because the merchandise was held on December 31 of Year 4, it was included in the Year 4 ending inventory. The purchase was recorded on January 18 of Year 5, when the invoice was paid (periodic inventory system). Ref. 1. Account 2. Dr. Cr. > > > 0 0 0 0 く 0 0 く 0 0 0 0 To correct error and record current year depreciation. To correct error. 3. 4. To correct error. 0 0 く 0 0 ✓ 0 0 > > > > To correct error. b. Compute the correct pretax income for Year 5. $ 0 0 0 0 0 0 0 0 0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Travis Inc. has just completed its financial statements for the reporting year ended December 31 of Year
5. Pretax income is $160,000. The accounts have not been closed for December 31 of Year 5. Further
consideration and review of the records revealed the following items related to the Year 5 statements.
1. On January 1 of Year 1, a machine was acquired that cost $10,000. The estimated useful life was 10
years, and the residual value was $2,000. At the time of acquisition, the full cost of the machine was
incorrectly debited to the land account. The company uses straight-line depreciation.
2. On January 1 of Year 3, a long-term investment of $18,000 was made by purchasing a $20,000, 8%
bond of FDC Corporation. The investment account was debited for $18,000. Each year, starting on
December 31 of Year 3, the company has recognized and reported investment revenue on these bonds
of $1,600. The bonds mature in 10 years from the date of purchase. Assume that any amortization
would follow the straight-line method and that Travis intends to hold the bonds to maturity.
3. The Year 4 ending inventory was overstated by $7,000 (periodic inventory system).
4. An $11,000 credit purchase of merchandise occurred on December 18 of Year 4. Because the
merchandise was held on December 31 of Year 4, it was included in the Year 4 ending inventory. The
purchase was recorded on January 18 of Year 5, when the invoice was paid (periodic inventory system).
Transcribed Image Text:Ref.
1.
Account
2.
Dr.
Cr.
> > >
0
0
0
0
く
0
0
く
0
0
0
0
To correct error and record current year depreciation.
To correct error.
3.
4.
To correct error.
0
0
く
0
0
✓
0
0
> >
> >
To correct error.
b. Compute the correct pretax income for Year 5.
$ 0
0
0
0
0
0
0
0
0
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