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P22.2 (L01,2,3) (Comprehensive Accounting Change and Error Analysis Problem) Botticelli SpA was organized in late 2016 to manufacture and sell hosiery. At the end of

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P22.2 (L01,2,3) (Comprehensive Accounting Change and Error Analysis Problem) Botticelli SpA was organized in late 2016 to manufacture and sell hosiery. At the end of its fourth year of opera- tion, the company has been fairly successful, as indicated by the following reported net incomes. 2016 140,000 2018 205.000 2017 160,000 2019 276,000 "Includes a 10,000 increase because of change in bad debt expense rate. The company has decided to expand operations and has applied for a sizable bank loan. The bank officer has indicated that the records should be audited and presented in comparative statements to facilitate analysis by the bank. Botticelli therefore hired the auditing firm of Check & Doublecheck Co. and has provided the following additional information. $ (1.) In early 2017, Botticelli changed its estimate from 2% to 1% of receivables on the amount of bad debt expense to be charged to operations. Bad debt expense for 2016, if a 1% rate had been used, would have been 10,000. The company therefore restated its net income for 2016. 2. In 2019, the auditor discovered that the company had changed its method of inventory pricing from average-cost to FIFO. The effect on the income statements for the previous years is as follows. * not included 2016 2017 2018 2019 Net income unadjusted-average-cost basis 140,000 160,000 205,000 276,000 Net income unadjusted-FIFO basis 155,000 165,000 215,000 260,000 15,000 5.000 10,000 ( 16,000) 3. In 2019, the auditor discovered that: 30,000+ in nevinomo as a resut of this a. The company incorrectly overstated the ending inventory by 14,000 in 2018. b. A dispute developed in 2017 with the tax authorities over the deductibility of entertainment expenses. In 2016, the company was not permitted these deductions, but a tax settlement was reached in 2019 that allowed these expenses. As a result of the court's finding, tax expenses in 2019 were reduced by 60,000. - P22.2 (L01,2,3) (Comprehensive Accounting Change and Error Analysis Problem) Botticelli SpA was organized in late 2016 to manufacture and sell hosiery. At the end of its fourth year of opera- tion, the company has been fairly successful, as indicated by the following reported net incomes. 2016 140,000 2018 205.000 2017 160,000 2019 276,000 "Includes a 10,000 increase because of change in bad debt expense rate. The company has decided to expand operations and has applied for a sizable bank loan. The bank officer has indicated that the records should be audited and presented in comparative statements to facilitate analysis by the bank. Botticelli therefore hired the auditing firm of Check & Doublecheck Co. and has provided the following additional information. $ (1.) In early 2017, Botticelli changed its estimate from 2% to 1% of receivables on the amount of bad debt expense to be charged to operations. Bad debt expense for 2016, if a 1% rate had been used, would have been 10,000. The company therefore restated its net income for 2016. 2. In 2019, the auditor discovered that the company had changed its method of inventory pricing from average-cost to FIFO. The effect on the income statements for the previous years is as follows. * not included 2016 2017 2018 2019 Net income unadjusted-average-cost basis 140,000 160,000 205,000 276,000 Net income unadjusted-FIFO basis 155,000 165,000 215,000 260,000 15,000 5.000 10,000 ( 16,000) 3. In 2019, the auditor discovered that: 30,000+ in nevinomo as a resut of this a. The company incorrectly overstated the ending inventory by 14,000 in 2018. b. A dispute developed in 2017 with the tax authorities over the deductibility of entertainment expenses. In 2016, the company was not permitted these deductions, but a tax settlement was reached in 2019 that allowed these expenses. As a result of the court's finding, tax expenses in 2019 were reduced by 60,000

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