Question

In May 20X5, the newly appointed controller of Butch Baking Corporation conducted a thorough review of past accounting, particularly of transactions that exceeded the company’s normal level of materiality. As a result of his review, he instructed the company’s chief accountant to correct two errors:

a. In 20X2, the company made extensive improvements to the baking process and installed a substantial amount of new equipment. The entire cost of the process improvements and equipment was accidentally charged to income as restructuring expense in 20X2. However, the equipment should have been capitalized and added to the factory equipment account. The cost of the equipment was $1,200,000. Butch depreciates its factory equipment on the straight-line basis over 10 years. A full year’s depreciation is charged in the year that equipment is acquired.

b. A year-end cut-off error occurred in 20X3. A large shipment of nonperishable supplies arrived from China on the last day of 20X3 and had been left in the shipping containers outside the main plant. As a result, the supplies were recorded as received in 20X4 and had not been included in the year-end 20X3 inventory count. The account payable also had not been recorded in 20X3. The supplies cost $106,000.

Like most companies, Butch Baking presents a five-year financial summary in its annual report. The 20X4 summary contained the following information (in thousands of dollars, except EPS):

		20X0			20X1			20X2			20X3			20X4
Gross revenue	$	15,200		$	16,400		$	17,900		$	17,200		$	16,200
Net income		2,010			2,150			870			2,320			1,890
Total assets		142,000			159,000			151,480			149,000			137,000
Total liabilities		50,800			66,800			71,640			69,000			65,000
Net assets		91,500			91,500			76,600			76,600			77,900
Earnings per share*	$	20.10		$	21.50		$	8.70		$	23.20		$	18.90

*100,000 shares outstanding

Required:
2. Revise the financial summary. (Enter answer in thousands, not in whole Canadian dollars. Round EPS answers to 1 decimal place.)
3. Prepare the journal entry or entries that are necessary to correct the accounts at 31 December 20X5. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter answer in thousands, not in whole Canadian dollars.)

Answer 1

PART B

Part A -Financial Summary

		20X0			20X1			20X2			20X3			20X4
Gross revenue		15,200			16,400			17,900			17,200			16,200
Net income		2,010			2,150			2070			2214			1,890
Total assets		142,000			159,000			271480			149,106			137,000
Total liabilities		50,800			66,800			71,640			69,106			65,000
Net assets		91,200			92200			199840			80000			72000
Earnings per share*		20.10			21.50			20.7			22.2			18.90