Question

Kriveloff Company is in the process of closing its books at the end of 2017. The company's preliminary income statement for 2017 and its reported income statement for 2016 are given below.

                                                                             2017                             2016

                        Sales Revenues                       $ 900,000                    $ 880,000

                        Cost of Goods Sold                    (450,000)                     (425,000)

                        Gross Profit                                 450,000                       455,000

                        Depreciation                               (115,000)                     (115,000)

                        Other Expenses                          (108,000)                     (102,000)

                              Net Income                         $ 227,000                    $ 238,000

        Kriveloff's records reveal the following information:

(1)  Kriveloff failed to accrue $7,000 of supplies expense at the end of 2016.  The supplies expense was recorded as paid in 2017.

(2)  On 1/1/15, Kriveloff purchased a machine for $120,000.  Although the machine was expected to have a five-year life, it was erroneously expensed in recording the purchase.  The appropriate depreciation method for this machine is double-declining-balance with no residual.

(3)  At the end of 2017, Kriveloff decided to change its inventory costing method from average cost to the FIFO method.  An analysis of the accounting records provides the following cost of goods sold amounts under average cost and FIFO:

                                    Year                     FIFO            Average

                                    2015                410,000           430,000

                                    2016                420,000           425,000

                                    2017                432,000           450,000

(4) Kriveloff acquired a truck on 1/3/15 for $75,000 and estimated its useful life to be 6 years with a salvage value of $15,000. In 2017, after the preliminary statements were prepared, Kriveloff realized that the truck could be used for an additional 5 years, but that the salvage value at the end of that time would probably be only $10,000. Straight-line depreciation is being used.

        Required:

        A.    Prepare the necessary journal entries at December 31, 2017, to record the above information.

B. Prepare new comparative income statements to reflect the adjustments required by items (1)-(3) above.  You may ignore income taxes.

        C.    Retained earnings reported for the end of 2016 was $2,333,000 and at the end of 2015 was $2,195,000.  Dividends of $100,000 have been declared in each year.  Prepare comparative statements of retained earnings for Kriveloff Company, reflecting appropriate adjustments from items (1)-(3) above, ignoring income taxes.

Show all work including formulas

Answer 1

		2017	2016
	Sales revenue	900000	880000
	Cost of Goods Sold	-450000	-425000
	Gross Profit	450000	455000
	Depreciation	-115000	-115000
	Other expenses	-108000	-102000
	Net Income	227000	238000
2016	Supplies Expense	$7,000
	To Supply Expense payable		$7,000
	(Being recording accrued expense in 2016)
2017	Supply Expense payable	$7,000
	To Cash		$7,000
	(Being 2016 accrued supplies expense paid)
2016	Depreciation	28800
	To Accumulated Depreciation		28800
	(120000/5*2) = 40%
	(120000-48000)*40%
	(Being Depreciation recorded for 2016)
2017	Depreciation	17280
	To Accumulated Depreciation		17280
	(120000-48000-28800)*40%
	(Being Depreciation recorded for 2017)
2016	Inventory A/c	5000
	To Cost of Goods Sold		5000
	(425000-420000)
2017	Inventory A/c	18000
	To Cost of Goods Sold		18000
	(450000-432000)
2017	Depreciation	5000
	To Accumulated depreciation		5000
	(Being depreciation for truck)
	(Assuming the depreciation for truck has not been recorded)
	Depreciation for truck in 2017
	Purchase Price	75000
	Less : Depreciation (75000-15000)/6 for 2015	10000
		65000
	Less : Depreciation for 2016	10000
	Book Value as on 1.01.2017	55000
	Less : Depreciation (55000-10000)/9	5000
		50000
B		2017	2016
	Sales revenue	900000	880000
	Cost of Goods Sold	-432000	-420000
	Gross Profit	468000	460000
	Depreciation	-137280	-143800
	Other expenses	-101000	-109000
	Net Income	229720	207200
C	Retained Earnings	2017	2016
	Opening Balance	2333000	2195000
	Less : Net Profit as per previous	-227000	-238000
	Add : Net Profit as per adjustments	229720	207200
	Less: dividend	-100000	-100000
	Ending Retained earnings	2235720	2064200