Ivanhoe Co. purchased equipment for $437,400which was estimated to have a useful life of 10 years with a salvage value of $8,200at the end of that time. Depreciation has been entered for 7 years on a straight-line basis. In 2021, it is determined that the total estimated life should be 15 years with a salvage value of $5,000at the end of that time.

(a) Show the entry (if any) to correct the prior years' depreciation.

(b) Show the entry to record depreciation for 2021.

No. Account Titles and Explanation Debit Credit

(A)

(B)

You have been engaged to review the financial statements of Kingbird Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows.

1.Year-end wages payable of $3,660 were not recorded because the bookkeeper thought that "they were immaterial."

2.Accrued vacation pay for the year of $33,500 was not recorded because the bookkeeper "never heard that you had to do it."

3.Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $2,592 because "the amount of the check is about the same every year."

4.Reported sales revenue for the year is $2,105,160. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state's Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that "the sales tax is a selling expense." At the end of the current year, the balance in the Sales Tax Expense account is $103,460.

Show the necessary correcting entries, assuming that Kingbird uses a calendar-year basis. The books for the current year have not been closed.

No.Account Titles and Explanation Debit Credit

1

(a)

(b)

2

(a)

(b)

3

(a)

(b)

4

(a)

(b)

(To record the sales taxes due.)

(a)

(b)

(To correct prior entry.)

Culver Tool Company's December 31 year-end financial statements contained the following errors.

December 31, 2020 December 31, 2021

Ending inventory $9,400 understated $8,700 overstated

Depreciation expense $2,500 understated

An insurance premium of $66,000 was prepaid in 2020 covering the years 2020, 2021, and 2022. The entire amount was charged to expense in 2020. In addition, on December 31, 2021, fully depreciated machinery was sold for $14,900 cash, but the entry was not recorded until 2022. There were no other errors during 2020 or 2021, and no corrections have been made for any of the errors. (Ignore income tax considerations.)

(a) Compute the total effect of the errors on 2021 net income.

Total effect of errors on net income

(b) Compute the total effect of the errors on the amount of Culver's working capital at December 31, 2021.

Total effect on working capital

(c) Compute the total effect of the errors on the balance of Culver's retained earnings at December 31, 2021.

Total effect on retained earnings