Below are three independent and unrelated errors.

On December 31, 2017, Wolfe-Bache Corporation failed to accrue office supplies expense of $2,100. In January 2018, when it received the bill from its supplier, Wolfe-Bache made the following entry:

On the last day of 2017, Midwest Importers received a $96,000 prepayment from a tenant for 2018 rent of a building. Midwest recorded the receipt as rent revenue.

At the end of 2017, Dinkins-Lowery Corporation failed to accrue interest of $8,600 on a note receivable. At the beginning of 2018, when the company received the cash, it was recorded as interest revenue.

   
Required:
For each error:
1. What would be the effect of each error on the income statement and the balance sheet in the 2017 financial statements?
2. Prepare any journal entries each company should record in 2018 to correct the errors.

Error A:

Income statement: (Expenses overstated, Expenses understated, Revenues overstated, Revenues understated) (Net income overstated, Net income understated)

Balance Sheet: (Assets overstated, Assets understated, Liabilities overstated, Liabilities understated) (Retained earnings overstated, Retained earnings understated)

Error B:

Income statement: (Expenses overstated, Expenses understated, Revenues overstated, Revenues understated) (Net income overstated, Net income understated)

Balance Sheet: (Assets overstated, Assets understated, Liabilities overstated, Liabilities understated) (Retained earnings overstated, Retained earnings understated)

Error C:

Income statement: (Expenses overstated, Expenses understated, Revenues overstated, Revenues understated) (Net income overstated, Net income understated)

Balance Sheet: (Assets overstated, Assets understated, Liabilities overstated, Liabilities understated) (Retained earnings overstated, Retained earnings understated)

1. Record the correction of the office supply error:

2. Record the correction of Rent Received in Advance:

3. Record correction of Interest Revenue on Note Receivable:

Required Place the appropriate letter identifying each quality on the line in front of the statement or phrase describing the quality.

P1-2   

Chapter 2:

Certain underlying considerations have had an important impact on the development of generally accepted accounting principles. Following is a list of these underlying considerations, as well as a list of statements describing them.

a. Going concern or continuity

b. Monetary unit

c. Conservatism

d. Matching

i. Industry practices

j. Verifiability

k. Consistency

l. Realization

e. Full disclosure

f. Materiality

n. Time period

g. Transaction approach   

o. Business entity

h. Accrual basis

__?_ 1. The business for which the financial statements are prepared is separate and distinct from the owners.

__?_ 2. The assumption is made that the entity will remain in business for an indefinite period of time.

__?_ 3. Accountants need some standard of measure to bring financial transactions together in a meaningful way.

__?_ 4. Revenue should be recognized when the earning process is virtually complete and the exchange value can be objectively determined.

__?_ 5. This concept deals with when to recognize the costs that are associated with the recognized revenue.

__?_ 6. Accounting reports must disclose all facts that may influence the judgment of an informed reader.

__?_ 7. This concept involves the relative size and importance of an item to a firm.

__?_ 8. The accountant is required to adhere as closely as possible to verifiable data.

__?_ 9. Some companies use accounting reports that do not conform to the general theory that underlies accounting.

__?_ 10. The accountant records only events that affect the financial position of the entity and, at the same time, can be reasonably determined in monetary terms.

__?_ 11. Revenue must be recognized when it is realized (realization concept), and expenses are recognized when incurred (matching concept).

__?_ 12. The entity must give the same treatment to comparable transactions from period to period.

__?_ 13. The measurement with the least favorable effect on net income and financial

position in the current period must be selected.

[The following information applies to the questions displayed below.]
Vanishing Games Corporation (VGC) operates a massively multiplayer online game, charging players a monthly subscription of $13. At the start of January 2018, VGC’s income statement accounts had zero balances and its balance sheet account balances were as follows:

In addition to the above accounts, VGC’s chart of accounts includes the following: Service Revenue, Salaries and Wages Expense, Advertising Expense, and Utilities Expense. The following transactions occurred during the January month:

1. Received $57,500 cash from customers on 1/1 for subscriptions that had already been earned in 2017.
2. Purchased 10 new computer servers for $42,800 on 1/2; paid $16,400 cash and signed a three-year note for the remainder owed.
3. Paid $15,300 for an Internet advertisement run on 1/3.
4. On January 4, purchased and received $3,250 of supplies on account.
5. Received $205,000 cash on 1/5 from customers for service revenue earned in January.
6. Paid $3,250 cash to a supplier on January 6.
7. On January 7, sold 17,300 subscriptions at $13 each for services provided during January. Half was collected in cash and half was sold on account.
8. Paid $400,000 in wages to employees on 1/30 for work done in January.
9. On January 31, received an electric and gas utility bill for $6,300 for January utility services. The bill will be paid in February.

2. Prepare journal entries for the January transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
3. Enter the beginning balances shown above in the following T-accounts and post the journal entries.
4. Prepare an unadjusted trial balance as of January 31, 2018.

Review the information presented below in the Sample Operating Budget and adjust this budget according to the following:

You have just learned that inpatient charges will probably be 3% higher than projected and that outpatient charges are expected to increase by 8%, and that your research grant support will be reduced by half.

The continuing education conference projected to net $3,200 has been canceled.

Salary expenses will likely be 2% higher than originally anticipated.

You are required to show a projected net profit of at least 50% of total revenue. If your revised budget generates less than this level of net profit or surplus, indicate where you can probably cut expenses to meet the target and explain why the expenses you have chosen to cut are your best choices.

Sample Operating Budget—Department of Physical Therapy

(July 1, 20n1, through June 30, 20n2)

I. Revenue and Income

A. Inpatient Charges           $550,000

B. Outpatient Charges                             310,000

C. Research Grant Support                      29,000

D. Continuing Education Conference         3,200

E. Supplies and Equipment Sales          11,500

       Total Revenue                                     $903,700

II. Expenses

     Direct Expenses

A. Salaries                                      $260,000

B. Consultant                                  2,500

C. Honorarium                                1,500

D. Minor Equipment                       6,000

E. Equipment Rental                       2,000

F. Travel                                           2,500

G. Telephone                                   5,000

H. Supplies                                      6,000

I. Postage                                        350

J. Copy Machine Rental                 11,000

K. Advertisement                             1,500

L. Dues                                               800

M. Books                                            350

N. Equipment Maintenance and Service Contracts       2,000

       Total Direct Expenses                                            $301,500

III. Indirect Expenses

A. Employee Benefits (23%)                                        $59,800

B. Administration                                                          23,000

C. Equipment Depreciation                                          7,200

D. Physical Plant Operation                                          39,000

E. Maintenance and Repairs                                          2,000

F. Building Depreciation                                                6,000

G. Laundry/Linen                                                        2,500

H. Housekeeping                                                           4,900

        Total Indirect Expenses                 $144,400

       Total Expenses                               $445,900

       Net Profit or Loss                          $457,800

The following information from Jefferson Company’s operations is available: Administrative expenses $145,000 Cost of goods sold 928,000 Sales revenue 1,850,000 Selling expenses 174,000 Interest expense 14,000 Loss from operations of discontinued segment 120,000 Gain on disposal of discontinued segment 90,000 Income taxes: Amount applicable to ordinary operations 125,000 Reduction applicable to loss from operations of discontinued segment 22,000 Amount applicable to gain on disposal of discontinued segment 15,000 Required

a. Prepare a multiple-step income statement. (Disregard earnings per share amounts.) b. Prepare a single-step income statement. (Disregard earnings per share amounts.) Note: Do not enter any answers as negative numbers unless it's indicated with an asterisk *.

JEFFERSON COMPANY Multiple-Step Income Statement For Year Ended Sales Revenue Answer 1,850,000 Answer Answer 0 Answer Answer 0 Selling Expenses Answer 0 Administrative Expenses Answer 0 Answer 0 Operating Income Answer 0 Interest Expense Answer 0 Income from Continuing Operations before Taxes Answer 0 Answer Answer 0 Answer Answer 0 Discontinued Operations Loss from operations of discontinued segment Answer 0 Gain on disposal of discontinued segment Answer 0 Answer 0 Net Income Answer 0 Note: Do not enter any answers as negative numbers unless it's indicated with an asterisk *. JEFFERSON COMPANY Single-Step Income Statement For Year Ended Sales Revenue Answer 0 Answer Cost of Goods Sold Answer 0 Selling Expenses Answer 0 Administrative Expenses Answer 0 Interest Expense Answer 0 Income Tax Expense Answer 0 Answer 0 Answer Answer 0 Answer Loss from operations of discontinued segment Answer 0 Gain on disposal of discontinued segment Answer 0 Answer 0 Net Income Answer 0

Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her business using the following financial data.
  

Required:
Prepare a statement of cash flows for Business Solutions using the indirect method for the three months ended March 31, 2020. Owner Santana Rey contributed $31,000 to the business in exchange for additional stock in the first quarter of 2020 and has received $4,000 in cash dividends. (Amounts to be deducted should be indicated with a minus sign.)

Speculator in Venezuela have recently come to believe that Venezuela's supply of petroleum next year will fall relative to Venezuela’s demand for petroleum next year. Upon learning about this belief held by speculators, Generalissimo Fisto, the military leader of Venezuela, outlaws all speculation in petroleum in Venezuela. One consequence of this dictate will be that

(a) Both the current and the future prices of petroleum in Venezuela will be lower than they would be with speculation

(b) Both of the current and the future prices of petroleum in Venezuela will be higher than they would be with speculation

(c) The current price of petroleum in Venezuela will be higher while the future price will be lower than they would be with speculation

(d) The current price of petroleum in Venezuela will be lower while the future price will be higher than they would be with speculation

The government of the (frictional) country of Kortula taxes income using a proportional tax system. This government raises the income- tax in Kortula from 35 % to 46 percent. The result will be

(a) More revenue for the government of Kortula

(b) Less revenue for the government of Kortula

(c) Unchanged revenue for the government of Kortula

(d) Possibly any one of the above ( that is , a or b or c)

Economists’ case for free trade depends upon which of these statements being true?

(a) No worker ever loses his or her current job because of an increase in imports

(b) Free trade generates high and rising current-account surpluses in the domestic economy.

(c) Free trade generates both current-account and capital- account balances of $0, year in and year out.

Which of the following will not case the demand for eggs to rise?

(a) An increase in the supply of eggs

(b) Consumers tastes changes such that they come to like eggs more

(c) Eggs are a normal good and consumers income rise

(d) Bacon is a complementary good to eggs and the price of bacon falls

It’s possible for producer in one country to have a comparative advantage over producers in every other country at producing every good and service desired by consumers.

(a) True

(b) False

ANALYSIS AND RESEARCH CASE: ACCOUNTING INFORMATION AND SALARY NEGOTIATIONS

Hamilton Hawks Players’ Association and Mr. Sideline, the CEO and majority owner of Hamilton Hawks Soccer, Inc, ask your help in resolving a salary dispute. Mr. Sideline presents the following income statement to the players’ representatives.

The players contend that their salaries are below market and a raise is warranted. Mr. Sideline argues that the Hamilton Hawks really lose money and, until ticket revenues increase, a salary hike is out of the question.

As a result of your inquiry, you discover that Hamilton Hawks Soccer Company owns 85 percent of the voting stock in Hawks Stadium, Inc. This venue is specifically designed for soccer and is where the Hawks play their entire home game schedule. However, Mr. Sideline does not wish to consider the profits of Hawks Stadium in the negotiations with the players. He claims that “the stadium is really a separate business entity that was purchased separately from the team and therefore does not concern the players. On top of that, we allocate all the ticket revenues to the team’s income statement."

The Hawks Stadium income statement appears as follows:

Required

What advice would you provide the negotiating parties regarding the issue of considering the Hawks Stadium income statement in their discussions? What authoritative literature could you cite in supporting your advice?

What other pertinent information would you need to provide a specific recommendation regarding players’ salaries?

The following incomplete balance sheet for the Sanderson Manufacturing Company was prepared by the company’s controller. As accounting manager for Sanderson, you are attempting to reconstruct and revise the balance sheet.

Additional information ($ in 000s):

Certain records that included the account balances for the patent and shareholders’ equity items were lost. However, the controller told you that a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.3. That is, total liabilities are 130% of total shareholders’ equity. Retained earnings at the beginning of the year was $6,200. Net income for 2018 was $2,100 and $500 in cash dividends were declared and paid to shareholders.

Management intends to sell the investments in the next six months.

Interest on both the note and the bonds is payable annually.

The note payable is due in annual installments of $1,550 each.

Deferred revenue will be recognized as revenue equally over the next two fiscal years.

The common stock represents 500,000 shares of no par stock authorized, 360,000 shares issued and outstanding.

Required:
Prepare a complete, corrected, classified balance sheet. (Amounts to be deducted should be indicated by a minus sign.)