Reference no: EM13536347
The reported net income amounts for Safety Waste Control Company were 2010, USD 200,000; and 2011, USD 230,000. No annual adjusting entries were made at either yearend for any of these transactions:
a. A building was rented on 2010 April 1. Cash of USD 14,400 was paid on that date to cover a twoyear period. Prepaid Rent was debited.
b. The balance in the Office Supplies on Hand account on 2010 December 31, was USD 6,000. An inventory of the supplies on 2010 December 31, revealed that only USD 3,500 were actually on hand at that date. No new supplies were purchased during 2011. At 2011 December 31, an inventory of the supplies revealed that USD 800 were on hand.
c. A building costing USD 1,200,000 and having an estimated useful life of 40 years and a residual value of USD 240,000 was put into service on 2010 January 1.
d. Services were performed for customers in December 2010. The USD 24,000 bill for these services was not sent until January 2011. The only transaction that was recorded was a debit to Cash and a credit to Service Revenue when payment was received in January.
Calculate the correct net income for 2010 and 2011. In your answer, start with the reported net income amounts. Then show the effects of each correction (adjustment) using a plus or a minus to indicate whether reported income should be increased or decreased as a result of the correction. When the corrections are added to or deducted from the reported net income amounts, the result should be the correct net income amounts. The answer format should be as follows:
| |
2010
|
2011
|
|
Explanation of Corrections
|
$200,000
|
$230,000
|
|
Reported net income
|
|
|
|
To correct error in accounting for:
|
|
|
|
Prepaid rent:
|
|
|
|
Correct expense in 2010
|
-5,400
|
|
|
Correct expense in 2011
|
|
-7,200
|