The company began operations on January 1, 2016. On January 1, 2018 the company changed its method of inventory pricing from FIFO to Moving-Average to provide more reliable information on the financial statements. The ending inventory values for 2016 and 2017 are as follows:
Presented below are the comparative statements for Serta Inc SERTA INC. Comparative Income Statement For the year ended December 31, 2018 2018 S 340,000 200.000 140,000 75.000 65,000 13.000 S 52.000 2017 Sales Cost of goods sold Gross profit Operating expenses $270,000 142.000 128,000 50,500 77,500 15.500 $ 62.000 Income tax expense Net income SERTA INC. Statement of Retained Earnings For the year ended December 31, 2018 2017 72,000 62,000 (30.000 25.000 131000 109.000 2018 Retained eanings, January 1 Net income Dividends Retained earnings, December 31 $109,000 52,000 Additional information: The company began operations on January 1, 2016. On January 1, 2018 the company changed its method of inventory pricing from FIFO to Moving-Average to provide more reliable information on the financial statements. The ending inventory values for 2016 and 2017 are as follows: 2016 2017 FIFO $30.500 S27,500 Moving-Average $35.100 $29,700 Please note that Serta Inc. uses a perpetual inventory system and the ending inventory for 2018 is correctly reported! Serta Inc. purchased equipment on March 31, 2017 for $35,000. It has a $5.000 estimated residual value and a ten-year life. During 2018 it was discovered that an expense account was debited on the purchase date. Serta Inc. uses straight-line depreciation and the depreciation has not been recorded for 2018 and of course, was not recorded for 2017. On January 1, 2016, Serta Inc. purchased a franchise at a cost of $50,000 which was being amortized (straight-line) over 10 years. In 2018, the company realized that a more realistic useful life would have been 18 years. Amortization has not been recorded for 2018 Required: (1) Prepare any necessary adjusting entries for the year ended December 31, 2018. assuming an income tax rate of 20% and that the books had not been closed for 2018 . Do not forget to adjust the currentyear income tax expense with respect to any adjustments that affect the current year net income! (2) Prepare a revised Statement of Income and Statement of Retained Earnings for the year ended December 31, 2018 showing the comparative figures for 2017. Show your Check figure: Retained Earnings at December 31, 2018-S152,800 (3) Prepare the necessary adjusting entry on the assumption that the books for 2018 had been closed out. You can prepare one combination journal entry if you want (this is the way that I have prepared the solution!) Note: in addition to re-stating the Retained Earnings as at January 1. 2018, you will also need to re-state the Retained Earnings as at January 1, 2017 due to the change in accounting policy re imventory Presented below are the comparative statements for Serta Inc SERTA INC. Comparative Income Statement For the year ended December 31, 2018 2018 S 340,000 200.000 140,000 75.000 65,000 13.000 S 52.000 2017 Sales Cost of goods sold Gross profit Operating expenses $270,000 142.000 128,000 50,500 77,500 15.500 $ 62.000 Income tax expense Net income SERTA INC. Statement of Retained Earnings For the year ended December 31, 2018 2017 72,000 62,000 (30.000 25.000 131000 109.000 2018 Retained eanings, January 1 Net income Dividends Retained earnings, December 31 $109,000 52,000 Additional information: The company began operations on January 1, 2016. On January 1, 2018 the company changed its method of inventory pricing from FIFO to Moving-Average to provide more reliable information on the financial statements. The ending inventory values for 2016 and 2017 are as follows: 2016 2017 FIFO $30.500 S27,500 Moving-Average $35.100 $29,700 Please note that Serta Inc. uses a perpetual inventory system and the ending inventory for 2018 is correctly reported! Serta Inc. purchased equipment on March 31, 2017 for $35,000. It has a $5.000 estimated residual value and a ten-year life. During 2018 it was discovered that an expense account was debited on the purchase date. Serta Inc. uses straight-line depreciation and the depreciation has not been recorded for 2018 and of course, was not recorded for 2017. On January 1, 2016, Serta Inc. purchased a franchise at a cost of $50,000 which was being amortized (straight-line) over 10 years. In 2018, the company realized that a more realistic useful life would have been 18 years. Amortization has not been recorded for 2018 Required: (1) Prepare any necessary adjusting entries for the year ended December 31, 2018. assuming an income tax rate of 20% and that the books had not been closed for 2018 . Do not forget to adjust the currentyear income tax expense with respect to any adjustments that affect the current year net income! (2) Prepare a revised Statement of Income and Statement of Retained Earnings for the year ended December 31, 2018 showing the comparative figures for 2017. Show your Check figure: Retained Earnings at December 31, 2018-S152,800 (3) Prepare the necessary adjusting entry on the assumption that the books for 2018 had been closed out. You can prepare one combination journal entry if you want (this is the way that I have prepared the solution!) Note: in addition to re-stating the Retained Earnings as at January 1. 2018, you will also need to re-state the Retained Earnings as at January 1, 2017 due to the change in accounting policy re imventory
