Question

Pig and Whistle Company, a small company following ASPE, is adjusting and correcting its books at the end of 2017. In reviewing its records, it compiles the following information.

a) Pig and Whistle has failed to accrue sales commissions payable at the end of each of the last two years, as follows:

Dec. 31, 2017	$6,200
Dec. 31, 2018	$3,800

B) In reviewing the December 31, 2018 inventory, Pig and Whistle discovered errors in its inventory-taking procedures that have caused inventories for the last three years to be incorrect, as follows:

Dec. 31, 2016	Understated $21,000
Dec. 31, 2017	Understated $24,000
Dec. 31, 2018	Overstated $ 9,000

Pig and Whistle has already made an entry that recognized the incorrect December 31, 2018 inventory amount.

C) In 2018, Pig and Whistle changed the depreciation method on its office equipment from double-declining-balance to straight-line because of a change in the pattern of benefits received. The equipment had an original cost of $160,000 when purchased on January 1, 2016. At that time, it was estimated that the office equipment had an eightyear useful life and no residual value. Depreciation expense recorded prior to 2018 under the double-declining- balance method was $70,000. Pig and Whistle has already recorded 2018 depreciation expense of $22,500 using the double-declining-balance method.

D) Before 2018, Pig and Whistle accounted for its income from long-term construction contracts on the completed- contract basis because it was unable to reliably measure the degree of completion or the estimated costs to complete. Early in 2018, Pig and Whistle changed to the percentage-of-completion basis for financial accounting purposes. The change was a result of experience with the project and improved ability to estimate the costs to completion and therefore the percentage complete. The completed-contract method will continue to be used for tax purposes. Income for 2018 has been recorded using the percentage-of-completion method. The following information is available:

	Pre-Tax Income
	Percentage-of-Completion	Completed-Contract
Prior to 2018	$195,000	$145,000
2018	75,000	30,000

Required:

1) Prepare the necessary journal entries at December 31, 2018 to record the above corrections and changes as appropriate. The books are still open for 2018. As Pig and Whistle has not yet recorded its 2018 income tax expense and payable amounts, tax effects for the current year may be ignored. Pig and Whistle’s income tax rate is 25%. Assume that Pig and Whistle applies the taxes payable method of accounting for income taxes.

Answer 1

Journal Entry
S. NO.	Account Tittle	Debit	Credit
1	Retained Earnings	$6,200.00
	Sales commission payable		$3,800.00
	Sales commission expense		$2,400.00
	( To record Sales comission )
2	Cost of goods sold	$33,000.00
	Retained earnings		$24,000.00
	Inventory…		$9,000.00
	(To Record adjustment of Inventory Value as per W/Note-1)
3	Accumulated depreciation-equipment	$7,500.00
	Depreciation expens		$7,500.00
	( TO Reversl of Depreciation expense extra recorded as per W/Note-2
	4) Work in Proces ($195000-$145000)	$50,000.00
	Deferred Tax – Liability (50000*25%)		$12,500.00
	Retained earnings		$37,500.00

Working Note-1
	2016	2017	2018
Beginning inventory		21000	24000
Ending inventory	-21000	-24000	9000
Overstatement/understatement (-)	-21000	-3000	33000

Working note-2
Cost of the equipment	160000
Depreciation before 2018	70000
Book value on 2018	90000
Depreciation for 2018 as per SLM	15000
(90000/6)
Depreciation expense already recorded	22500
Excess Dep. Expense Recorded	7500