Q3-
Question 1: At the end of 2020, Castle Consulting did NOT make the adjusting entries indicated below. Indicate the effect of the error on 2020 Net Income, Assets, Liabilities, and Owner's Equity (on December 31, 2020). Please specify the dollar effect of the error. Use o for overstate, U for understate, and NE for no effect. Assume each error is independent of the others. Error Net Assets Liabilities Owner's Equity Income 1. Entry to record interest expense on a short- term Note Payable. The note has a balance of 60,000. The annual interest rate of 10%, dated May 1. The interest is payable with the principal at maturity. 2. On July 1st, 2019 the company bought a machine for 240,000 and debited the entire amount to expense. The machine has a useful life of 10 years and no salvage value. The company would normally have used the straight line depreciation method. The company did not correct the error in both 2019 and 2020. 3. Entry to record the expired portion of a three-year life insurance policy paid for on August 1, 2020 for 72,000 and charged to a permanent account. 4. Entry to record accrued salaries and wages earned by employees at fiscal year-end in the amount of 7,500. LucJLIUI 2. At the beginning of its 2020 calendar-year accounting period, Clay, Inc. had retained earnings of $6,500,000. During 2020, Clay reported income from continuing operations before taxes of $1,100,000. The following additional transactions occurred in 2020 but were not included in the $1,100,000. Assume all of the following were material. 1. Clay had a restructuring charge of $16,000 (pre-tax). 2. Clay had an uninsured flood loss of $20,000 (pre-tax) which was considered to be both unusual and infrequent. During 2020, Clay decided to sell an unprofitable segment of its business. The sale of this segment qualifies as a discontinued operation for financial reporting purposes. However, at the end of 2020, the company had yet to sell the segment. On December 31, 2020 the segment assets had a fair value minus anticipated costs to sell of $3,700,000 and a book value of $4,200,000. For the year, the segment reported an operating loss of $500,000. 4. Clay declared and paid cash dividends of $70,000 on its common stock. 5. At the beginning of 2017, the company purchased a machine for $50,000 that they expensed during 2017. The company would normally have used the straight-line depreciation method with a $500 salvage value and 9 year useful life. This was discovered as the accountant was reviewing the information for the 2020 financial statements. Depreciation expense on this machine for 2020 was not included in the $1,100,000 above. a. Prepare an income statement for the year 2020, beginning with Income from Continuing Operations before Taxes. Assume the tax rate was 40%. b. What is the ending Retained Earnings balance for Clay, Inc. as of December 31, 2020? Prepare a Statement of Retained Earnings. Presented below is the December 31 trial balance of Juno Beach Clothing, Inc. Credit $ 600 JUNO BEACH CLOTHING, INC. TRIAL BALANCE DECEMBER 31 Debit Cash $ 23,850 Accounts Receivable 16,000 Allowance for Doubtful Accounts Inventory, December 31 73,600 Prepaid Insurance 5,200 Equipment 60,000 Accumulated Depreciation - Equipment Notes Payable Accounts Payable Common Stock Retained Earnings Sales Revenue Cost of Goods Sold 204,150 Salaries and Wages Expense (sales) 56,850 Advertising Expense 26,700 Salaries and Wages Expense (administrative) 79,300 Supplies Expense 4,200 $549,850 26,000 21,000 18,400 10,000 76,550 397,300 $549,850 The books are closed yearly on December 31. Additional information is provided below: 1. Bad debt expense is estimated to be $1,600. 2. Equipment is depreciated based on a 8-year life (no salvage value). 3. Insurance expired during the year $3,650. 4. Interest accrued on notes payable $2,050. 5. Sales salaries and wages earned but not paid $2,750. 5. Sales salaries and wages earned but not paid $2,750. 6. Advertising paid in advance $1,100, charged to Advertising Expense when purchased 7. Office supplies on hand $900, charged to Supplies Expense when purchased. Prepare an Adjusted Trial Balance
