Question

Please answer all a,b,c,d!!!

Assume calendar year-ends for all companies and that all errors are material.

a. Quigley Down Under Co. bought a machine on January 1, 2017 for $1,400,000. The machine had an estimated residual value of $120,000 and a ten-year life. “Machine expense” was debited on the purchase date for $1,400,000. Quigley uses straight-line depreciation for all assets. The error was discovered on June 15, 2018 after the books had been closed for 2017.

What journal entry (if any) should Quigley record on 6/15/18 related to this error? (ignore taxes)

True or false:

Quigley should restate its income statements and balance sheets for all prior years affected by the error and reported in the 2018 annual report.

TRUE                                               FALSE

b. On October 1, 2017 Arrival Co. received $60,000 in advance for services the company would perform for its customers evenly over the next 12 months (beginning 10/1/17). That day, Arrival debited cash and credited revenue for $60,000, and no other entries were recorded related to this transaction. The error was not discovered until February 1, 2018 after the books had been closed for 2017. Arrival’s marginal tax rate is 30%.

What journal entry (if any) should Arrival record on 2/1/18 related to this error?

True or false : Arrival should restate its income statements and balance sheets for all prior years affected by this error and reported in the 2018 annual report.

TRUE                                               FALSE

c. On December 1, 2016 Breaking Good, Inc. paid $20,000 in advance for insurance services beginning 12/1/16 and lasting for 12 months. On that date, Breaking Good debited insurance expense for the full amount. This error is discovered on May 20, 2018 (after the books for 2017 were closed).

What journal entry (if any) should Breaking Good record on 5/20/18 related to this error? (ignore taxes)

True or false : Breaking Good should restate its income statements and balance sheets for all prior years affected by this error and reported in the 2018 annual report.

TRUE                                               FALSE

d. Person Family, Inc. began operations on 1/1/15, and used the LIFO method for inventory accounting. During 2017, the company decided to switch from LIFO to FIFO. The following income statement information (LIFO and FIFO) is available for the years 2015–2017:

LIFO Inventory Method                FIFO Inventory Method

2015 2016 2017 2015 2016 2017

Pre-tax financial income          70,000 55,000 140,000             130,000 85,000 160,000

Income tax expense, 30%        (21,000)            (16,500)            (42,000) (39,000) (25,500) (48,000)

Net Income 49,000 38,500 98,000 91,000 59,500 112,000

What journal entry should Person Family record during 2017 for the change in accounting principle from LIFO to FIFO?

True or false: Person Family should restate its income statements and balance sheets for all prior years affected by this error and reported in the 2017 annual report.

TRUE                                               FALSE

Answer 1

a)

	Account Description	Debit	Credit
15-Jun	Machine	1,400,000.00
	To retained Earnings		1,272,000.00
	To Accumulated Depreciation		128,000.00

True.

b.

	Account Description	Debit	Credit
1-Feb-18	Retained Earnings	40,000.00
	Unearned Revenue		40,000.00

True

c)

	Account Description	Debit	Credit
20-May-18	Prepaid Insurance	11,666.67
	Insurance	6,666.67
	Retained Earnings		18,333.33
	( Assumed Dec '16 as Financial Year End)

True

	LIFO		FIFO		Change in Previous Year	LIFO	FIFO	Change in Current Year
	2015	2016	2015	2016		2017	2017
Pre Tax Income	70,000.00	55,000.00	130,000.00	85,000.00	90,000.00	140,000.00	160,000.00	20,000.00
Income Tax	(21,000.00)	(16,500.00)	(39,000.00)	(25,500.00)	(27,000.00)	(42,000.00)	(48,000.00)	(6,000.00)
Net Income	49,000.00	38,500.00	91,000.00	59,500.00	63,000.00	98,000.00	112,000.00	14,000.00

	Debit	Credit
Inventory	85,000.00
To Retained Earning		59,500.00
To Deffered Tax Liablity		25,500.00
Inventory	20,000.00
To Retained Earnings		14,000.00
To Income Tax		6,000.00

True