Problem Frazier Co is a clothing retailer who operates in the southeastern US A partial trial balance showing Fraziers equity, revenue and expense balances as of its December 31, 2020 year end follows Debits Credits Dividends $ 217,360 Retained earnings (1 1 20) $ 581,495 Unrealized holding gain SHB bonds (1 1 20) 74,610 Interest revenue 19,145 Sales revenue 7,382,810 Advertising expense 85,790 Cost of goods sold 4,699,285 Depreciation expense 176,530 Interest expense 94,865 Rent expense 208,490 Salaries and wages expense 1,171,215 Utilities expense 154,920 In addition, the following information is available for the company for 2020 Unless indicated otherwise, this information has not yet been reflected in the companys accounts All of the dollar amounts are stated on a before tax basis In preparing its 2020 financial statements, Frazier has determined that it must write down certain inventory items by a total of $34,660 In November 2020, Frazier announced that it overstated the sales revenue reported in its 2019 financial statements The company determined that it overstated its 2019 sales revenue by $158,430 Frazier plans to record a correcting entry before year end 2020 and report the correction as required by GAAP in its 2020 financial statements Note The discovery and correction of the 2019 error will not change the sales revenue for 2020 The $7,382,810 figure in the partial trial balance above is correct In September 2020, a hurricane and related flooding did significant damage to one of the companys warehouses The amount of Fraziers loss, net of the salvage proceeds and insurance settlement, was $82,535 Hurricanes and severe flooding are rare in the area where the damaged warehouse is located In 2015, Frazier purchased bonds issued by SHB Co , which it continues to hold as an available for sale investment The fair value of Fraziers investment increased in 2020, from $283,760 to $309,480 Note The $74,610 Unrealized holding gain SHB bonds (1 1 20) in the partial trial balance above relates to this item and, of course, is stated net of income taxes At year end 2020, Frazier decided to change its inventory cost flow method from Last in, First out (LIFO) to First in, First out (FIFO) The effect of the change on 2020 and prior years is as follows 2020 Prior Years Cost of goods sold LIFO $4,699,285 $13,116,000 Cost of goods sold FIFO 4,512,940 12,759,000 Note The cost of goods sold figure in Fraziers partial trial balance above reflects use of the old method (LIFO) for 2020 In early January 2016, Frazier purchased certain equipment at a price of $52,900 Frazier began depreciating the equipment using the straight line method and estimates of 12 years for useful life and $6,400 for salvage value Frazier depreciated the equipment on this basis through 2019 (actually 2020 see the Note below) In early January 2020, the company determined that its initial estimates needed to be revised Frazier decreased the useful life from 12 to 9 years and decreased the salvage value from $6,400 to $3,600 Note Frazier mistakenly computed depreciation on this equipment for 2020 using the original estimates (12 years and $6,400) The depreciation expense of $176,530 shown in the partial trial balance above reflects use of the original estimates for this equipment In March 2020, Frazier shifted its business strategy, resulting in the August 2020 sale of a component of the company considered a separate major line of business The sale produced a loss on disposal of $121,720 The operations of the component, prior to the sale in October, produced an income of $32,190 In June 2020, Frazier sold land it was holding as an investment Frazier received $376,250 from the sale of the land At the time of the sale, the land had a book value of $93,815 Assume the above amounts are material Also, assume the income tax rate applicable to all years and all income items is 30 Finally, note that Frazier uses the multiple step format for the reporting of net income items and the two income statement approach for the display of other comprehensive income items Instructions Prepare the financial statements for the year ended December 31, 2020 to show the proper reporting of Fraziers income and changes in retained earnings Prepare these statements in good form, according to GAAP requirements Refer to models of the financial statements in the textbook (pages 4 1 to 4 25), the practice problems and the class notes and examples

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Problem Frazier Co. is a clothing retailer who operates in the southeastern US. A partial trial balance showing Fraziers equity, revenue and expense balances as

Problem

Frazier Co. is a clothing retailer who operates in the southeastern US. A partial trial balance showing Fraziers equity, revenue and expense balances as of its December 31, 2020 year-end follows:

Debits Credits

Dividends $ 217,360

Retained earnings (1/1/20) $ 581,495

Unrealized holding gain SHB bonds (1/1/20) 74,610

Interest revenue 19,145

Sales revenue 7,382,810

Advertising expense 85,790

Cost of goods sold 4,699,285

Depreciation expense 176,530

Interest expense 94,865

Rent expense 208,490

Salaries and wages expense 1,171,215

Utilities expense 154,920

In addition, the following information is available for the company for 2020. Unless indicated otherwise, this information has not yet been reflected in the companys accounts. All of the dollar amounts are stated on a before-tax basis.

In preparing its 2020 financial statements, Frazier has determined that it must write down certain inventory items by a total of $34,660.

In November 2020, Frazier announced that it overstated the sales revenue reported in its 2019 financial statements. The company determined that it overstated its 2019 sales revenue by $158,430. Frazier plans to record a correcting entry before year-end 2020 and report the correction as required by GAAP in its 2020 financial statements.

Note The discovery and correction of the 2019 error will not change the sales revenue for 2020. The $7,382,810 figure in the partial trial balance above is correct.

In September 2020, a hurricane and related flooding did significant damage to one of the companys warehouses. The amount of Fraziers loss, net of the salvage proceeds and insurance settlement, was $82,535. Hurricanes and severe flooding are rare in the area where the damaged warehouse is located.

In 2015, Frazier purchased bonds issued by SHB Co., which it continues to hold as an available-for-sale investment. The fair value of Fraziers investment increased in 2020, from $283,760 to $309,480.

Note The $74,610 Unrealized holding gain SHB bonds (1/1/20) in the partial trial balance above relates to this item and, of course, is stated net of income taxes.

At year-end 2020, Frazier decided to change its inventory cost flow method from Last-in, First-out (LIFO) to First-in, First-out (FIFO). The effect of the change on 2020 and prior years is as follows:

2020 Prior Years

Cost of goods sold LIFO $4,699,285 $13,116,000

Cost of goods sold FIFO 4,512,940 12,759,000

Note The cost of goods sold figure in Fraziers partial trial balance above reflects use of the old method (LIFO) for 2020.

In early January 2016, Frazier purchased certain equipment at a price of $52,900. Frazier began depreciating the equipment using the straight-line method and estimates of 12 years for useful life and $6,400 for salvage value. Frazier depreciated the equipment on this basis through 2019 (actually 2020 see the Note below). In early January 2020, the company determined that its initial estimates needed to be revised. Frazier decreased the useful life from 12 to 9 years and decreased the salvage value from $6,400 to $3,600.

Note Frazier mistakenly computed depreciation on this equipment for 2020 using the original estimates (12 years and $6,400). The depreciation expense of $176,530 shown in the partial trial balance above reflects use of the original estimates for this equipment.

In March 2020, Frazier shifted its business strategy, resulting in the August 2020 sale of a component of the company considered a separate major line of business. The sale produced a loss on disposal of $121,720. The operations of the component, prior to the sale in October, produced an income of $32,190.

In June 2020, Frazier sold land it was holding as an investment. Frazier received $376,250 from the sale of the land. At the time of the sale, the land had a book value of $93,815.

Assume the above amounts are material. Also, assume the income tax rate applicable to all years and all income items is 30%. Finally, note that Frazier uses the multiple-step format for the reporting of net income items and the two-income statement approach for the display of other comprehensive income items.

Instructions

Prepare the financial statements for the year ended December 31, 2020 to show the proper reporting of Fraziers:

income and

changes in retained earnings.

Prepare these statements in good form, according to GAAP requirements. Refer to models of the financial statements in the textbook (pages 4-1 to 4-25), the practice problems and the class notes and examples.