(CIA adapted) P22.9B (LO 3,4) (Error Analysis) SLC Corporation has used the accrual basis of accounting for several years. A review of the records, however, indicates that some expenses and revenues have been handled on a cash basis because of errors made by an inexperienced bookkeeper. Income statements prepared by the bookkeeper reported $46,000 net income for 2019 and $52,000 net income for 2020. Further examination of the records reveals that the following items were handled improperly: 1. Rent was received from a tenant in Janaury 2020. The amount, $2,000, was recorded as revenue at that time even though the rental pertained to December 2019. 2. Salaries and wages payable on December 31 have been consistently omitted from the records of that date and have been entered as expenses when paid in the following year. The amounts of the accruals recorded in this manner were: December 31, 2018 December 31, 2019 December 31, 2020 $2,400 1,150 2,180 6 Chapter 22 Accounting Changes and Error Analysis 3. Invoices for office supplies purchased have been charged to expense accounts when received. Inventories of supplies on hand at the end of each year have been ignored, and no entry has been made for them. Instructions December 31, 2018 December 31, 2019 December 31, 2020 $800 1,160 650 Prepare a schedule that will show the corrected net income for the years 2019 and 2020. All items listed should be labeled clearly. (Ignore income tax considerations.) P22.10B (LO 3,4) (Error Analysis and Correcting Entries) You have been asked by a client to review the records of Beaches Company, a small distributor of high quality hot tubs and pools. Your client is interested in buying the business, and arrange- ments have been made for you to review the accounting records. Your examination reveals the following information: 1. Beaches Company commenced business on July 1, 2018, and has been reporting on a fiscal year ending June 30. The com- pany has never been audited, but the annual statements prepared by the bookkeeper reflect the following income before closing and before deducting income taxes: Year Ended June 30 Income Before Taxes 2019 2020 2021 $40,600 85,300 78,900 2. A relatively small number of hot tubs have been shipped on consignment. These transactions have been recorded as ordi- nary sales and billed as such. On June 30 of each year, the selling price of hot tubs billed and in the hands of consignees amounted to: 2019 2020 2021 none $15,600 8,800 Sales price was determined by adding 20% to cost. Assume that the consigned machines are sold the following year. 3. On June 28, 2019, two hot tubs were shipped to a customer on a C.O.D. basis. The sale was not entered until July 10, 2019, when cash was received for $6,800. The hot tubs were not included in the inventory at June 30, 2019. (Title passed on June 28, 2019.) 4. All hot tubs and pools are sold subject to a 3-year warranty. It is estimated that the expense ultimately to be incurred in connection with the warranty will amount to 0.6% of sales. The company has charged an expense account for warranty costs incurred. Sales per books and warranty costs were as follows: Year Ended June 30 2019 2020 2021 Sales $1,200,000 1,560,000 2,089,000 2019 $1,540 1,180 820 Warranty Expense for Sales Made in 2020 2021 Total $1,540 $1,680 1,190 2,860 $1,900 3,910