Question

1.

In the previous year, a firm failed to record premium amortization of $41,900 and $29,600, respectively, on its bonds payable and held to maturity bond Investments. These errors affect both Income before tax and taxable income. The firm's tax rate is 30%. As a result of this error, net Income was: Multiple Choice O Overstated by $8.610. O Understated by $33.290. O Understated by $8.610. O Overstated by $33.290.

2.

Answer 1

110 Premium on Bonds Payable 41900 111 Premium on bond investments 29600 Deferred tax liability (41900-29600) *30% Retained earnings 3690 112 8610 113 114 Answer C) Understated by $8610 115 116 117

26 Identify the type of change. For accounting errors, choose "Not applicable" 27 Event Type of change 28 An error NA 29 a 30 b An accounting Change Change in estimate An error NA 31 c An accounting Change Change in accounting Principle 32 d An error NA 33 e An accounting Change An accounting Change 34 f Change in estimate resulting from a change in accounting principle Change in estimate 35 g 36 37 38 2. Prepare any journal entry necessary as a direct result of the change or error correction as well as 39 any adjusting entry for 2018 related to the situation described. Any tax effects should be adjusted for through Income tax payable 40 General Journal Debit Credit 41 42 a 1) Prepaid Insurance (36000 /5 *3) Retained Earnings |(Torecord entry for correction of error) 2160 2160 43 44 45 Insurance Expense (36000 /5) Prepaid Insurance (To record adjusting entry) 7200 46 a 2) 7200 47 48 49 50 b 1) No Journal entry required

Depreciation expense 52 b 2) 15,700 Accumulated depreciation (To record adjusting entry) 53 15,700 54 55 Cost 628,000 56 Less salvage value depreciated Cost (120,000) 57 58 508,000 Number of Years of Life 59 40 Depreciation per Year Depreciation for 10 Years (10*12700) 60 12,700 61 127,000 Book Value after 10 Years 628000 127000 62 501,000 New Salavage Value (30,000) 63 Amount to be depreciated Estimated remaining useful life (40-10) New Depreciation (471000/30) 64 471,000 65 30 15,700 66 67 Retained Earnings Inventory (Torecord entry for correction of error) 68 с 1) 26000 26000 69 70 71 72 c 2) No Journal entry required 73 74 d 1) Inventory Retained Earnings (Torecord entry for correction of error) 970000 970000 75 76

No Journal entry required 78 d 2) 79 Retained Earnings 80 e 1) 15700 Compensation expense (Torecord entry for correction of error) 15700 81 82 83 84 e 2) 85 No Journal entry required 86 f 1) 87 Depreciation expense 88 f2) 59,200 Accumulated depreciation 89 59,200 (To record adjusting entry) 90 91. Book value 473600 92 Remaining Life (10- 2) Depreciation 8 93 59200 94 95 No Journal entry required 96 g 1) 97 98 g 2) Warranty Expense 29,400 Estimated Warranty Liability 99 29,400 (4200000 .70%) 100 (To record adjusting entry) 101 102