You have been provided with the following information related to two recent financial years for Sky Dirt Inc. (amounts in Smillions): Balance sheot data 2019 2020 Retained earnings-beginning of year 800 920 Accounts receivable-gross 750 950 Income statement Revenues 2,500 2,650 Cost of goods sold 1,600 1,650 Selling, general, and administrative expenses 300 320 Depreciation 100 100 Interest expense 260 2401 Income before tax 240 3401 Income tax expense 72 102 Net income 168 238 While preparing the 2020 financial statements, you realize that, in anticipation of uncollectible accounts, there needs to be a downward adjustment to end-of-year accounts receivable by 6% of the accounts receivable balance. REQUIRED Using the table function in Brightspace (in the answer area click on the three little dots ...) create a table like the following (this is not mandatory but it's the easiest way to organize your answer), indicate the impact on the financial statements if this change is due to one of the following reasons (ignore the effect of income tax): a. An error correction because the company should have known that receivables were overvalued as early as 2019 b. A change in estimate due to new information showing a deterioration of economic conditions 2019 2020 Retained Accounts Statement of comp. Accounts Statement of comp Type of accounting Retained earnings income earnings receivable change income receivable You have been provided with the following information related to two recent financial years for Sky Dirt Inc. (amounts in Smillions): Balance sheot data 2019 2020 Retained earnings-beginning of year 800 920 Accounts receivable-gross 750 950 Income statement Revenues 2,500 2,650 Cost of goods sold 1,600 1,650 Selling, general, and administrative expenses 300 320 Depreciation 100 100 Interest expense 260 2401 Income before tax 240 3401 Income tax expense 72 102 Net income 168 238 While preparing the 2020 financial statements, you realize that, in anticipation of uncollectible accounts, there needs to be a downward adjustment to end-of-year accounts receivable by 6% of the accounts receivable balance. REQUIRED Using the table function in Brightspace (in the answer area click on the three little dots ...) create a table like the following (this is not mandatory but it's the easiest way to organize your answer), indicate the impact on the financial statements if this change is due to one of the following reasons (ignore the effect of income tax): a. An error correction because the company should have known that receivables were overvalued as early as 2019 b. A change in estimate due to new information showing a deterioration of economic conditions 2019 2020 Retained Accounts Statement of comp. Accounts Statement of comp Type of accounting Retained earnings income earnings receivable change income receivable
