Question

Faubert failed to accrue $10,000 of Interest Revenue for interest earned in Year 2. Revenue was recorded when the cash collection was received in Year 3. 

 

Answer 1

1) Corrected Journal Entries:

Date	Particulars	Debit	Credit
Dec 31,Year 4	Receivables A/c Dr.	$10,000
	To Interest Revenue A/c		$10,000
	(To record Interest revenue accured in year 4)
Dec 31, Year 5	Cash A/c Dr.	$10,000
	To Receivables A/c		$10,000
	(To record Interest revenue received in year 5)

 

2) Correct Income Statement and Balance Sheet are as follows:

Faubert Company
Income Statement	Adjustments in Year 5	Adjustments in Year 4	Corrected Income Statement
	For Year 5	For Year 4	Debit	Credit	Debit	Credit	For Year 5	For Year 4
Sales	$850,000	$800,000	0	0	0	0	$850,000	$800,000
Cost of Goods Sold	-3,40,000	-4,00,000	0	0	0	0	-3,40,000	-4,00,000
Gross Profit	$510,000	$400,000	0	0	0	0	$510,000	$400,000
Operating Expenses:
Insurance	-9,000	-29,000	0	0	0	0	-9,000	-29,000
Wages	-2,29,000	-2,30,000	0	0	0	0	-2,29,000	-2,30,000
Depreciation	-1,40,000	-1,30,000	0	0	0	0	-1,40,000	-1,30,000
Income from Operations	$132,000	$11,000	0	0	0	0	$132,000	$11,000
Other Revenues and Expenses:
Interest Revenue	28,000	30,000	10,000	0	0	10,000	18,000	40,000
Bad debt Expenses	-4,300	-4,400	0	0	0	0	-4,300	-4,400
Rent Revenue	23,000	25,000	0	0	0	0	23,000	25,000
Gain on Exchange of Machine	4,000	0	0	0	0	0	4,000	0
Net Income	$182,700	$61,600	10,000	0	0	10,000	$172,700	$71,600

 

Faubert Company
Balance Sheet	Adjustments in Year 5	Adjustments in Year 4	Corrected Balance Sheet
	For Year 5	For Year 4	Debit	Debit	For Year 5	For Year 4
Assets
Current Assets
Cash and Cash Equivalents	$580,100	$340,000	0	0	$580,100	$340,000
Receivables(net of allowances)	2,20,500	1,96,000	0	10,000	2,20,500	2,06,000
Inventories	85,000	75,000	0	0	85,000	75,000
Prepaid Expenses and other Assets	30,300	22,500	0	0	30,300	22,500
Total Current Assets	9,15,900	6,33,500			9,15,900	6,43,500
Land	72,000	90,000	0	0	72,000	90,000
Plant and Machine, net	3,20,000	2,75,000	0	0	3,20,000	2,75,000
Other Assets	28,300	29,800	0	0	28,300	29,800
Total Assets	$1,336,200	$1,028,300			$1,336,200	$1,038,300
Liabilities and shareholder's Equity
Current Liability
Account Payable	$59,000	$10,400	0	0	$59,000	$10,400
Rent payable	61,000	43,000	0	0	61,000	43,000
Unearned revenue	4,000	3,000	0	0	4,000	3,000
wages payable	17,000	2,400	0	0	17,000	2,400
Current position of Long term debt	10,000	-	0	0	10,000	-
Total Current Liability	1,51,000	58,800			1,51,000	58,800
Long term Debt	30,000	40,000	0	0	30,000	40,000
Total Liabilities	1,81,000	98,800			1,81,000	98,800
Common Stock	1,00,000	1,00,000	0	0	1,00,000	1,00,000
Additional paid up capital	7,92,000	7,49,000	0	0	7,92,000	7,49,000
Retained earnings	3,14,100	1,31,400	0	10,000	3,14,100	1,41,400
Treasury stock (at cost)	-50,900	-50,900	0	0	-50,900	-50,900
Total shareholder's Equity	11,55,200	9,29,500	-	10,000	11,55,200	9,39,500
Total Liabilities and shareholder's Equity	$1,336,200	$1,028,300	0	10,000	$1,336,200	$1,038,300

1) Corrected Journal Entries:

Date	Particulars	Debit	Credit
Dec 31,Year 4	Receivables A/c Dr.	$10,000