Blimp Co. reported net income of P1,000,000 for the year ended December 31, 2020. Upon further...

Blimp Co. reported net income of P1,000,000 for the year ended December 31, 2020. Upon further inspection of its records, the entity failed to recognized prepaid insurance of P12,000; accrued expense and revenue of P2,000 and P4,000, respectively. An advance payment of P10,000 from a customer was also entirely recognized as a liability. It was found out that Blimp has already earned 30% of it. Lastly, sales from a customer amounting to P20,000 was incorrectly recognized as P2,000.

1. Following the concepts of accrual accounting, how much is the correct net income of Blimp in 2020?

2. Why are adjusting entries prepared at the end, and not at the beginning, of a period?

Expert Solution


	ADJUSTING ENTRIES
	Account Titles	Debit	Credit
	Prepaid insurance not recognized:
	Prepaid Insurance	12,000
	Insurance expenses		12,000

	Accrued expenses not recognized
	Expenses	2,000
	Accrued Expenses		2,000

	Revenue not recognized:
	Accounts Receivable	4,000
	Revenue		4,000

	Not Recognized 30% earned Revenue from Advance
	Unearned Revenue	3,000		(10000*30%)
	Revenue		3,000

	Incorrectly recognized Sales
	Accounts Receivable	18,000		(20000-2000)
	Revenue		18,000

	Reported Net Income	1,000,000
	Adjustments:
	Prepaid insurance not recognized:	12,000
	Accrued expenses not recognized	(2,000)
	Revenue not recognized:	4,000
	Not Recognized 30% earned Revenue from Advance	3,000
	Incorrectly recognized Sales	18,000
	CORRECT NET INCOME OF BLIMP IN 2020	1,035,000

2	Since accounts are closed at the end of a period, Adjusting entres are required at end of period to arrive at correct income and balance sheet

ekkarill92 answered 2 years ago

The income statement of Redman Inc. for the year ended December 31, 2020, reported the following...

The income statement of Redman Inc. for the year ended December 31, 2020, reported the following condensed information: Service revenue $ 600,000 Operating expenses 360,000 Income from operations 240,000 Income tax expense 60,000 Net income $180,000 Redman's statement of financial position contained the following comparative data at December 31: 2020 2019 Accounts receivable $65,000 $40,000 Accounts payable 40,000 55,000 Income taxes payable 6,000 3,000 Redman has no depreciable assets. Accounts...

For the year ended December 31, 2020, Stellar Ltd. reported income before income taxes of $100,000....

For the year ended December 31, 2020, Stellar Ltd. reported income before income taxes of $100,000. In 2020, Stellar Ltd. paid $54,000 for rent; of this amount, $18,000 was expensed in 2020. The remaining $36,000 was treated as a prepaid expense for accounting purposes and would be expensed equally over the 2021-2022 period. The full $54,000 was deductible for tax purposes in 2020. The company paid $70,000 in 2020 for membership in a local golf club (which was not deductible...

For the year ended December 31, 2021, Norstar Industries reported net income of $655,000. At January...

For the year ended December 31, 2021, Norstar Industries reported net income of $655,000. At January 1, 2021, the company had 900,000 ordinary shares outstanding. The following changes in the number of shares occurred during 2021: April 30 Sold 60,000 shares in a public offering. May 24 Declared and distributed a bonus issue of 5%. June 1 Issued 72,000 shares as part of the consideration for the purchase of assets from a subsidiary. Required: Compute Norstar's earnings per share for...

For the year ended December 31, 2018, Norstar Industries reported net income of $655,000. At January...

For the year ended December 31, 2018, Norstar Industries reported net income of $655,000. At January 1, 2018, the company had 900,000 common shares outstanding. The following changes in the number of shares occurred during 2018: Apr. 30 Sold 60,000 shares in a public offering. May 24 Declared and distributed a 5% stock dividend. June 1 Issued 72,000 shares as part of the consideration for the purchase of assets from a subsidiary. Required: Compute Norstar's earnings per share for...

For the fiscal year ended December 31, 2019, Nicholas Corporation reported net income of $600,000 and...

For the fiscal year ended December 31, 2019, Nicholas Corporation reported net income of $600,000 and had 900,000 common shares outstanding from the beginning to the end of the year. On May 1, 2019, Nicholas issued 5% convertible bonds. Each $1,000 bond is convertible into 120 common shares. The total proceeds were $1,000,000 at par and were recognized in the liability and equity components using the residual value method, measuring the liability component first, at the present value of the...

In its income statement for the year ended December 31, 2017, Sandhill Co. reported the following...

In its income statement for the year ended December 31, 2017, Sandhill Co. reported the following condensed data. Salaries and wages expenses $697,500 Loss on disposal of plant assets $ 125,250 Cost of goods sold 1,480,500 Sales revenue 3,315,000 Interest expense 106,500 Income tax expense 37,500 Interest revenue 97,500 Sales discounts 240,000 Depreciation expense 465,000 Utilities expense 165,000 Prepare a multiple-step income statement. Calculate the profit margin and gross profit rate. (Round answers to 1 decimal place, e.g. 15.2%.) Profit...

Perry Corporation reported net income of $136,200 for the year ended December 31, 2021. January 1...

Perry Corporation reported net income of $136,200 for the year ended December 31, 2021. January 1 balances in accounts receivable and accounts payable were $28,800 and $27,400, respectively. Year-end balances in these accounts were $30,500 and $22,700, respectively. Assuming that all relevant information has been presented, Perry's cash flows from operating activities would be: Multiple Choice $137,900. $76,900. $142,600. $129,800.

Stanley Department Stores reported net income of $863,000 for the year ended December 31, 2021. Additional...

Stanley Department Stores reported net income of $863,000 for the year ended December 31, 2021. Additional Information: Common shares outstanding at Jan. 1, 2021 120,000 Incentive stock options (vested in 2020) outstanding throughout 2021 36,000 (Each option is exercisable for one common share at an exercise price of $26.00) During the year, the market price of Stanley’s common stock averaged $31.20 per share. On Aug. 30, Stanley sold 15,000 common shares. Stanley’s only debt consisted of $42,000 of 10% short-term...

Stanley Department Stores reported net income of $881,000 for the year ended December 31, 2021. Additional...

Stanley Department Stores reported net income of $881,000 for the year ended December 31, 2021. Additional Information: Common shares outstanding at Jan. 1, 2021 125,000 Incentive stock options (vested in 2020) outstanding throughout 2021 36,000 (Each option is exercisable for one common share at an exercise price of $26.50) During the year, the market price of Stanley’s common stock averaged $31.80 per share. On Aug. 30, Stanley sold 15,000 common shares. Stanley’s only debt consisted of $43,000 of 10% short-term...

For the year ended December 31, 2017, Transformers Inc. reported the following: Net Income $305068 Preferred...

For the year ended December 31, 2017, Transformers Inc. reported the following: Net Income $305068 Preferred dividends paid 54210 Common dividends paid 9619 Unrealized holding loss, net of tax 3543 Retained Earnings, beginning balance 389503 Common Stock 177628 Accumulated Other Comprehensive Income, beginning balance 22896 What would Transformers report as the ending balance of Retained Earnings?

Question