On March 5, 2021, you were hired by Pearl Inc , a closely held company, as a staff member of its newly created internal auditing department While reviewing the companys records for 2019 and 2020, you discover that no adjustments have yet been made for the following items Items 1 Interest income of $14,800 was not accrued at the end of 2019 It was recorded when received in February 2020 2 A computer costing $3,920 was expensed when purchased on July 1, 2019 It is expected to have a 4 year life with no salvage value The company typically uses straight line depreciation for all fixed assets 3 Research and development costs of $35,100 were incurred early in 2019 They were capitalized and were to be amortized over a 3 year period Amortization of $11,700 was recorded for 2019 and $11,700 for 2020 4 On January 2, 2019, Pearl leased a building for 5 years at a monthly rental of $7,600 On that date, the company paid the following amounts, which were expensed when paid Security deposit $18,500 First months rent 7,600 Last months rent 7,600 $33,700 5 The company received $39,600 from a customer at the beginning of 2019 for services that it is to perform evenly over a 3 year period beginning in 2019 None of the amount received was reported as unearned revenue at the end of 2019 6 Merchandise inventory costing $16,800 was in the warehouse at December 31, 2019, but was incorrectly omitted from the physical count at that date The company uses the periodic inventory method Indicate the effect of any errors on the net income figure reported on the income statement for the year ending December 31, 2019, and the retained earnings figure reported on the balance sheet at December 31, 2020 Assume all amounts are material, and ignore income tax effects Using the following format, enter the appropriate dollar amounts in the appropriate columns Consider each item independent of the other items It is not necessary to total the columns on the grid Net Income for 2019 Retained Earnings 12 31 20 Item Understated Overstated Understated Overstated 1 $ $ $ $ 2 $ $ $ $ $ 3 $ $ $ $ 4 $ $ $ $ 5 $ $ $ $ 6 $ $ $

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 31, 2024

On March 5, 2021, you were hired by Pearl Inc., a closely held company, as a staff member of its newly created internal auditing department.

On March 5, 2021, you were hired by Pearl Inc., a closely held company, as a staff member of its newly created internal auditing department. While reviewing the companys records for 2019 and 2020, you discover that no adjustments have yet been made for the following items.

Items
1.		Interest income of $14,800 was not accrued at the end of 2019. It was recorded when received in February 2020.
2.		A computer costing $3,920 was expensed when purchased on July 1, 2019. It is expected to have a 4-year life with no salvage value. The company typically uses straight-line depreciation for all fixed assets.
3.		Research and development costs of $35,100 were incurred early in 2019. They were capitalized and were to be amortized over a 3-year period. Amortization of $11,700 was recorded for 2019 and $11,700 for 2020.
4.		On January 2, 2019, Pearl leased a building for 5 years at a monthly rental of $7,600. On that date, the company paid the following amounts, which were expensed when paid.

Security deposit		$18,500
First months rent		7,600
Last months rent		7,600
		$33,700

5.		The company received $39,600 from a customer at the beginning of 2019 for services that it is to perform evenly over a 3-year period beginning in 2019. None of the amount received was reported as unearned revenue at the end of 2019.
6.		Merchandise inventory costing $16,800 was in the warehouse at December 31, 2019, but was incorrectly omitted from the physical count at that date. The company uses the periodic inventory method.

Indicate the effect of any errors on the net income figure reported on the income statement for the year ending December 31, 2019, and the retained earnings figure reported on the balance sheet at December 31, 2020. Assume all amounts are material, and ignore income tax effects. Using the following format, enter the appropriate dollar amounts in the appropriate columns. Consider each item independent of the other items. It is not necessary to total the columns on the grid.

image text in transcribed

Net Income for 2019 Retained Earnings 12/31/20 Item Understated Overstated Understated Overstated 1. $ $ $ $ 2. $ $ $ $ $ 3. $ $ $ $ 4. $ $ $ $ 5. $ $ $ $ 6. $ $ $