This is an assignment from SAB 108 for Iron Curtain and Rollover procedure. Should not take more than 10 minutes to complete adjusting entries. Thank you in advance
Assignment: Iron Curtain versus Rollover evaluations of misstatement materiality and correcting entries under SAB 108 For each independent scenario below, prepare the 2011 correcting entries that would be required under (A) the iron curtain approach, (B) the rollover approach and (C) SAB 108. Assume that tolerable misstatement for the 2011 financial statements is set at $800 and assume that the identified prior period misstatements were considered immaterial and were therefore not corrected. 1. In 2010, the company recorded a $1000 sale that actually occurred in 2011. 2. In 2010, the company recorded a $500 sale that actually occurred in 2011. In 2011, the company failed to record a $400 sale. 3. In 2010, the company recorded a $600 sale that actually occurred in 2011. In 2011, the company similarly recorded a $500 sale that actually occurred in 2012. 4. At the end of 2010, the company had underaccrued the warranty liability by $700. In 2011, $300 of related warranty claims were paid. At the end of 2011, the underaccrual had grown to $1600. 5. At the end of 2010, the company had underaccrued the warranty liability by $700. In 2011, $300 of related warranty claims were paid. At the end of 2011, the underaccrual had grown to $1200. 6. The company did not accrued salary expense of $500 at the end of 2010. The company similarly did not accrue salaries of $1500 at the end of 2011. 7. The company overestimated bad debt expense by $400 in 2009, by $200 in 2010 and $500 in 2011. 8. The company failed to accrue utility expense of $1200 in 2011. Part b) 3A 3B Roll over approach Date Particulars 1 12/31/2011 Accounts receivables Sales (Sales not recorded in the year 2011, now corrected) 2 12/31/2011 Accounts receivables Sales (Sales not recorded in the year 2011, now corrected) 12/31/2011 Accounts receivables Sales (Sales not recorded in the year 2011, now corrected) 12/31/2011 Sales Accounts receivables (Sales recrded belongs to year 2012, now corrected) 4 12/31/2011 Warranty expense Warranty claim provision (Warranty under accrual for 2011 is provided for) 5 12/31/2011 Warranty expense Warranty claim provision (Warranty under accrual for 2011 is provided for) 6 12/31/2011 Salary expense Accrued salary (Outstanding salary for 2011 is accrued) 7 12/31/2011 Provision for bad debts Bad debts expense (Excess bad debts provision for 2011, reversed) 8 12/31/2011 Utilities expense Accrued utilities expense (Utilities expense accrued) Amount (DR) Amount (CR) 1000 1000 900 900 600 600 1B 2A 2B 3A 3B 3C 4A 4B 5A 5B 6A 6B 7A 7B Iron curtain method Date Particulars 12/31/2011 Accounts receivables Sales (Sales not recorded in the year 2011, now corrected) 12/31/2011 Retained earnings Accounts receivables (Sales wrongly recorded in the year 2010, now corrected) 12/31/2011 Accounts receivables Sales (Sales not recorded in the year 2011, now corrected) 12/31/2011 Retained earnings Accounts receivables (Sales wrongly recorded in the year 2010, now corrected) 12/31/2011 Accounts receivables Sales (Sales not recorded in the year 2011, now corrected) 12/31/2011 Retained earnings Accounts receivables (Sales wrongly recorded in the year 2010, now corrected) 12/31/2011 Sales Accounts receivables (Sales recorded belongs to year 2012, now corrected) 12/31/2011 Warrant expense Warranty claim provision (Warranty under accrual for 2011 is provided for) 12/31/2011 Retained earnings Warranty claim provision (Warranty under accrual for 2010 is provided for) 12/31/2011 Warrant expense Warranty claim provision (Warranty under accrual for 2011 is provided for) 12/31/2011 Retained earnings Warranty claim provision (Warranty under accrual for 2010 is provided for) 12/31/2011 Salary expense Accrued salary (Outstanding salary for 2011 is accrued) 12/31/2011 Retained earnings Accrued salary (Outstanding salary for 2010 was not accrued,now corrected) 12/31/2011 Provision for bad debts Bad debts expense (Excess bad debts provision for 2011, reversed) 12/31/2011 Provision for bad debts Retained earnings (Excess bad debts provision for 2009 and 2010, reversed) 8 12/31/2011 Utilities expense Accrued utilities expense (Utilities expense accrued) SAB 108 impact assessment 1 Sales correction impact 2 Sales correction impact 3 Sales correction impact 4 Warranty expense correction 5 Warranty expense correction 6 Accrued salary correction 7 Exces bad debt provision correction Net impact Iron curtain approach 0 0 0 -700 -700 -500 200 -1700 Roll over approach 1000 900 600 0 0 0 0 2500 500 500 900 900 500 500 1500 1500 500 500 1200 1200 Part a) 1A Part c) S.No Amount (DR) Amount (CR) 1000 1000 1000 1000 900 900 900 900 600 600 600 600 500 500 900 900 700 700 500 500 700 700 1500 1500 500 500 500 500 600 600 1200 1200 Note: Impact is more than cut off hence prior period statement need to be revised 2011 entries will be same as shown under roll over approach
