Question 1: At the end of 2013, Castle Consulting did NOT make the adjusting entries indicated below.Indicate the effect of the error on 2013 Net Income, Assets, Liabilities, and Owner?s Equity (onDecember 31, 2013). Please specify the dollar effect of the error. Use O for overstate, U forunderstate, and NE for no effect. Assume each error is independent of the others.Error NetIncomeAssets Liabilities Owner?sEquity

1. Entry to record interest expense on a short?term Note Payable. The note as a balanceof 90,000. The annual interest rate of 8%,dated May 1. The interest is payable withthe principal at maturity.

2. On July 1st, 2012 the company bought amachine for 160,000 and debited the entireamount to expense. The machine has auseful life of 10 years and no salvage value.The company would normally have usedthe straight line depreciation method. Thecompany did not correct the error in both2012 and 2013.

3. Entry to record the expired portion of athree?year life insurance policy paid for onAugust 1, 2013 for 72,000 and charged to apermanent account.

4. Entry to record accrued salaries and wagesearned by employees at fiscal year?end inthe amount of 7,500.

5. Entry to adjust office supplies expense. Thesupplies were purchases in 2011 to anominal account in the amount of 18,000.Office Supply on hand at the end of the2011 is 12,000. Office Supply on hand at theend of the 2012 is 7,000. Office Supply onhand at the end of the 2013 is 2,000. Noadjusting entries were made in each of theyears 2011, 2012 and 2013.

Question 2: At the beginning of its 2013 calendar?year accounting period, Commet, Inc. had retainedearnings of $7,500,000. During 2013, Commet reported income from continuing operationsbefore taxes of $1,200,000. The following additional transactions occurred in 2013 but were notincluded in the $1,200,000. Assume all of the following were material.

1. Commet had a restructuring charge of $17,000 (pre?tax).

2. Commet had an uninsured flood loss of $275,000 (pre?tax) which was considered to beboth unusual and infrequent in nature.

3. During 2013, Commet decided to sell an unprofitable segment of its business. The saleof this segment qualifies as a discontinued operation for financial reporting purposes.However, at the end of 2013, the company had yet to sell the segment. On December31, 2013 the segment assets had a fair value minus anticipated costs to sell of$3,800,000 and a book value of $4,100,000. For the year, the segment reported anoperating loss of $600,000.

4. Commet declared and paid cash dividends of $80,000 on its common stock.

5. At the beginning of 2010, the company purchased a machine for $60,000 and fullyexpensed it during 2010. The company would normally have used the straight?linedepreciation method with a $5,000 salvage value and 10 year useful life. This wasdiscovered as the accountant was reviewing the information for the 2013 financialstatements. Depreciation expense on this machine for 2013 was not included in the$1,200,000 above.

a. Prepare an income statement for the year 2013, beginning with Income from ContinuingOperations before Taxes. Assume the tax rate was 40%.

b. What is the ending Retained Earnings balance for Commet, Inc. as of December 31,2013?

Question 3: Busby Corp. uses cash?basis accounting for its records. During 2013, Busby collected $540,000from its customers, made payments of $372,000 to its suppliers for inventory, and paid$158,000 for administrative costs. Busby wants to prepare accrual?basis financial statements. Ingathering information for the accrual?basis financial statements, Busby discovered thefollowing:

1. Customers owed Busby $38,000 at the beginning of 2013 and $46,000 at the end of2013.

2. Busby owed suppliers $29,000 at the beginning of 2013 and $37,000 at the end of the2013.

3. Busby?s beginning inventory was $52,000 and its ending inventory was $42,000.

What should Busby?s Gross Profit be on accrual basis?

Assignment 1 (Due 2/22/2016) Question 1: At the end of 2013, Castle Consulting did NOT make the adjusting entries indicated below. Indicate the effect of the error on 2013 Net Income, Assets, Liabilities, and Owner's Equity (on December 31, 2013). 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 1. Entry to record interest expense on a short term Note Payable. The note as a balance of 90,000. The annual interest rate of 8%, dated May 1. The interest is payable with the principal at maturity. 2. On July 1st, 2012 the company bought a machine for 160,000 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 2012 and 2013. 3. Entry to record the expired portion of a threeyear life insurance policy paid for on August 1, 2013 for 72,000 and charged to a permanent account. 4. Entry to record accrued salaries and wages earned by employees at fiscal yearend in the amount of 7,500. 5. Entry to adjust office supplies expense. The supplies were purchases in 2011 to a nominal account in the amount of 18,000. Office Supply on hand at the end of the 2011 is 12,000. Office Supply on hand at the end of the 2012 is 7,000. Office Supply on hand at the end of the 2013 is 2,000. No adjusting entries were made in each of the years 2011, 2012 and 2013. Net Income Assets Liabilities Owner's Equity 1 | P a g e Question 2: At the beginning of its 2013 calendaryear accounting period, Commet, Inc. had retained earnings of $7,500,000. During 2013, Commet reported income from continuing operations before taxes of $1,200,000. The following additional transactions occurred in 2013 but were not included in the $1,200,000. Assume all of the following were material. 1. Commet had a restructuring charge of $17,000 (pretax). 2. Commet had an uninsured flood loss of $275,000 (pretax) which was considered to be both unusual and infrequent in nature. 3. During 2013, Commet 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 2013, the company had yet to sell the segment. On December 31, 2013 the segment assets had a fair value minus anticipated costs to sell of $3,800,000 and a book value of $4,100,000. For the year, the segment reported an operating loss of $600,000. 4. Commet declared and paid cash dividends of $80,000 on its common stock. 5. At the beginning of 2010, the company purchased a machine for $60,000 and fully expensed it during 2010. The company would normally have used the straightline depreciation method with a $5,000 salvage value and 10 year useful life. This was discovered as the accountant was reviewing the information for the 2013 financial statements. Depreciation expense on this machine for 2013 was not included in the $1,200,000 above. a. Prepare an income statement for the year 2013, beginning with Income from Continuing Operations before Taxes. Assume the tax rate was 40%. b. What is the ending Retained Earnings balance for Commet, Inc. as of December 31, 2013? 2 | P a g e Question 3: Busby Corp. uses cashbasis accounting for its records. During 2013, Busby collected $540,000 from its customers, made payments of $372,000 to its suppliers for inventory, and paid $158,000 for administrative costs. Busby wants to prepare accrualbasis financial statements. In gathering information for the accrualbasis financial statements, Busby discovered the following: 1. Customers owed Busby $38,000 at the beginning of 2013 and $46,000 at the end of 2013. 2. Busby owed suppliers $29,000 at the beginning of 2013 and $37,000 at the end of the 2013. 3. Busby's beginning inventory was $52,000 and its ending inventory was $42,000. What should Busby's Gross Profit be on accrual basis? 3 | P a g e