Evaluate the net income to be reported each year 2007

Assignment Help Financial Accounting

Reference no: EM1314378

Accounting for changes and error corrections
Pack Company's net incomes for the past three years are presented below:

2009	2008	2007
$480,000	$450,000	$360,000

During the 2009 year-end audit, the following items come to your attention:

a. Pack bought a truck on January 1, 2006 for $196,000 with a $16,000 estimated salvage value and a six-year life. The company debited an expense account and credited cash on the purchase date for the entire cost of the asset. (Straight-line method)

b. During 2009, Pack changed from the straight-line method of depreciating its cement plant to the double-declining balance method. The following computations present depreciation on both bases:

	2009	2008	2007
Straight-line	36,000	36,000	36,000
Double-declining	46,080	57,600	72,000

The net income for 2009 was computed using the double-declining balance method, on the January 1, 2009 book value, over the useful life remaining at that time. The depreciation recorded in 2009 was $72,000.
3. Pack, in reviewing its provision for uncollectible during 2009, has determined that 1% is the appropriate amount of bad debt expense to be charged to operations. The company had used ½ of 1% as its rate in 2008 and 2009 when the expense had been $18,000 and $12,000, respectively. The company recorded bad debt expense under the new rate for 2009. The company would have recorded $6,000 less of bad debt expense on December 31, 2009 under the old rate.

Instructions

a. Prepare in general journal form the entry necessary to correct the books for the transaction in part 1 of this problem, assuming that the books have not been closed for the current year.

b. Compute the net income to be reported each year 2007 through 2009.

c. Assume that the beginning retained earnings balance (unadjusted) for 2007 was $1,260,000. At what adjusted amount should this beginning retained earnings balance for 2007 be stated, assuming that comparative financial statements were p0repared?

d. Assume that the beginning retained earnings balance (unadjusted) for 2009 is $1,800,000 and that non-comparative financial statements are prepared. At what adjusted amount should this beginning retained earnings balance be stated?

Reference no: EM1314378

Questions Cloud

Investment decision-investment cost function : Your company is considering an investment project that will generate after-tax cash flows of $1,000 per year for the next three years (and then be scrapped, with no salvage value).

Computation of yield to maturity and its effective annual : Computation of yield to maturity and its effective annual yield and the bonds mature in 5 years and pay interest semi-annually

Point out the true or false condition : Point out the true or false condition.

Estimating the difference between the population means : Use a 5% significance level to test the claim that there appears to be a difference in the effectiveness of the two diets.

Evaluate the net income to be reported each year 2007 : Prepare in general journal form the entry necessary to correct the books for the transaction in part 1 of this problem, assuming that the books have not been closed for the current year and evaluate the net income to be reported each year 2007 thr..

Computation of current yield and : Computation of current yield the bond pays interest annually matures in 12 years and has a yield to maturity of 7.842 percent

Impact on short-run phillips curve : Explain what happens to the position of the nation's short-run Phillips Curve if the following events occur:

Aggregate supply curve-equilibrium level of output : Explain what happens to the nation's aggregate supply curve, the short-run equilibrium level of output, and the price level if:

Cash flows from operating activities and net income : Cash flows from operating activities and Net income will be increased or adjusted upward and Net income will be decreased or adjusted downward.

User Account

All Pages