Question

The net income per books of Sheffield Industries Limited was determined without any knowledge of the following errors. The 2019 year was Sheffield’s first year in business. No dividends have been declared or paid.

Year		Net Income per Books			Error in Ending Inventory
2015		$50,600			Overstated			$5,800
2016		54,400			Overstated			9,500
2017		55,000			Understated			11,100
2018		56,600			No error
2019		59,100			Understated			2,500
2020		60,600			Overstated			9,900

A. Prepare a work sheet to show the adjusted net income figure for each of the six years after taking the inventory corrections into account.

Errors in Inventories
Year		Net Income Per Books		Over– statement Jan. 1			Under– statement Jan. 1			Over– statement Dec. 31			Under– statement Dec. 31			Corrected Net Income
2015		$50,600			$			$			$			$			$
2016		54,400
2017		55,000
2018		56,600
2019		59,100
2020		60,600
		$															$

B. Prepare a schedule that shows both the original retained earnings balance reported at the end of each year and the corrected amount.

Year		Original Net Income			Balance Retained Earnings			Corrected Net Income			Revised Retained Earnings
2015			$50,600			$			$			$
2016			54,400
2017			55,000
2018			56,600
2019			59,100
2020			60,600
			$						$

Answer 1

D E 1 1) 2 Work sheet to show the adjusted net income figure after taking into the inventories corrections into account 3 Errors in Inventories Under- Under- Corrected Net Income Over-statement statement Over-statement statement Net Year (As per Books) (Jan 1) (Jan 1) (Dec 31) (Dec 31) Income 2015 50600 5800 44800 2016 54400 5800 9500 50700 2017 55000 0 11100 75600 2018 56600 11100 ol 45500 2019 59100 2500 61600 2020 60600 25000 9900 48200 336300 326400 ol 9500

13 14 2) 15 Schedule Indicating retained earning balance Revised Balance Retained Corrected Net Retained 16 Year Original Net Income I Earnings Income Earnings 2015 50600 50600 448001 44800 2016 54400 105000 50700 95500 2017 55000 1600000 756001 171100 2018 56600 216600 45500 216600 2019 59100 2757001 61600 278200 2020 60600 3363000 48200 326400 336300 326400

A. D 1 1) 2 Work sheet to show the adjusted net income figure after taking into the inventories corrections into account 3 Errors in Inventories Over-statement (Jan 1) Under-statement (Jan 1) Over-statement (Dec 31) 5800 9500 0 0 Net Income 5 Year (As per Books) 6 2015 50600 7 2016 54400 8 2017 55000 9 2018 56600 10 2019 59100 11 2020 60600 12 =SUM(B6:B11) 5800 9500 0 10 Under-statement (Dec 31) Corrected Net Income =B6-E6 10 =B7+C7-E7 11100 =B8+C8+F8 =B9-09 2500 =B10+F10 =B11-D11-E11 =SUM(G6:611) 11100 0 0 0 2500 9900

- T ДА В 13 14 2) 15 Schedule Indicating retained earning balance 16 Year Original Net Income Balance Retained Earnings Corrected Net Income Revised Retained Earnings 17 2015 (50600 50600 =G6 44800 18 2016 54400 =C17+54400 =G7 =E17+D18 19 2017 55000 =C18+B19 =G8 =E18+D19 | 20 2018 56600 =C19+B20 =G9 =E19+D20 21 2019 59100 =C20+B21 =G10 =E20+D21 22 2020 60600 =C21+B22 =E21+D22 23 =SUM(B17:B22) =SUM(D17:D22) F=G11