Question
Manila Corp reported net incomes for a three-year period as follows: 2012 2011 2010 $240,000 $225,000 $180,000 During the 2012 year-end audit, the following items
Manila Corp reported net incomes for a three-year period as follows:
2012 | 2011 | 2010 |
$240,000 | $225,000 | $180,000 |
During the 2012 year-end audit, the following items come to your attention:
1. Manila bought a truck on January 1, 2009 for $98,000 cash, with an $8,000 estimated residual value and a six-year life. The company debited an expense account for the entire cost of the asset. Manila uses straight-line depreciation for all vehicles.
2. During 2012, Manila changed from straight-line depreciation for its cement plant to double declining balance. The following calculations present depreciation on both bases:
|
| 2012 | 2011 | 2010 |
Straight-line |
| $18,000 | $18,000 | $18,000 |
Double declining balance |
| 23,100 | 30,000 | 36,000 |
The net income for 2012 was calculated using the double declining balance method.
3. In reviewing its provision for uncollectible accounts during 2012, the corporation has determined that 1% is the appropriate amount of bad debt expense to be charged to operations. The company had used 1/2 of 1% as its rate in 2011 and 2010 when the expense had been $9,000 and $6,000, respectively. Manila recorded bad debt expense using the new rate for 2012. If they had used the old rate, they would have recorded $3,000 less bad debt expense on December 31, 2012.
Required
(a) Prepare the general journal entry required to correct the books for the item 1 situation (only) of this problem, assuming that the books have not been closed for 2012.
(b) Present comparative income statement data for the years 2010 to 2012 in accordance with generally accepted accounting principles starting with income before cumulative effect of any accounting changes. Ignore all income tax effects.
(c) Assume that the beginning retained earnings balance (unadjusted) for 2010 was $630,000. At what adjusted amount should the beginning retained earnings balance for 2010 be shown, assuming that comparative financial statements were prepared?
(d) Assume that the beginning retained earnings balance (unadjusted) for 2012 is $900,000 and that comparative financial statements are not prepared. At what adjusted amount should this beginning retained earnings balance be shown?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started