Reference no: EM131779777
Problem 2-Error Analysis (from Intermediate Accounting, 16th Edition; Stice, Stice, & Skousen)
A CPA was engaged by Alpine Corp. in 2015 to examine its books and records and to make whatever corrections are necessary. An examination of the accounts discloses the following.
(a) Dividends had been declared on December 15 in 2012 and 2013 but had not been entered in the books until paid.
(b) Improvements in buildings and equipment of $4,800 had been debited to expense at the end of April 2011. Improvements are estimated to have an 8-year life. The company uses the straight-line method in recording depreciation and computes depreciation to the nearest month.
(c) The physical inventory of merchandise had been understated by $1,500 at the end of 2012 and by $2,150 at the end of 2013.
(d) The merchandise inventories at the end of 2013 and 2014 did not include merchandise that was then in transit and to which the company had title. These shipments of $1,900 and $2,750 were recorded as purchases in January of 2014 and 2015, respectively.
(e) The company had failed to record sales commissions payable of $1,050 and $850 at the end of 2013 and 2014, respectively.
(f) The company had failed to recognize supplies on hand of $600 and $1,250 at the end of 2013 and 2014, respectively.
The retained earnings account appeared as shown below on the date the CPA began the examination.
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Date
|
Item
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Debit
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Credit
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Balance
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2012
|
|
|
|
|
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Jan. 1
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Balance
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|
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40,500
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Dec. 31
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Net income
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|
9,000
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49,500
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2013
|
|
|
|
|
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Jan 10
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Dividends paid
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7,500
|
|
42,000
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Mar 6
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Stock sold-excess over par
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|
16,000
|
58,000
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Dec. 31
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Net loss
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5,600
|
|
52,400
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2014
|
|
|
|
|
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Jan. 10
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Dividends paid
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7,500
|
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44,900
|
|
Dec. 31
|
Net loss
|
6,200
|
|
38,700
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Instructions:
1. Journalize the necessary corrections assuming the 2014 books are closed.
2. Prepare a schedule of corrected net income for 2012-2014.
3. Prepare a statement of retained earnings covering the 3-year period beginning January 1, 2012. The statement should show the beginning Retained Earnings balance for each year as reported and the corrected Retained Earnings balance at the end of each year.
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