Professional Documents
Culture Documents
PROBLEM 1
On March 2nd, 2011 PT Kepal Dancow purchased equipment for $1,210,000 which was estimated
to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. In July 3rd,
2017, The company determined that the total estimated life should be 15 years with a salvage
value of $8,000 at the end of that time.
Instructions
(a) Prepare the entry (if any) to correct the prior years’ depreciation.
(b) Prepare the entry to record depreciation for year end 2017.
PROBLEM 2
Sejahtera Co. was organized in late 2012 to manufacture and sell hosiery. At the end of its fourth
year of operation, the company has been fairly successful, as indicated by the following reported
net incomes.
2012 €140,000a 2014 €205,000
2013 160,000 2015 276,000
aIncludes a $10,000 increase because of change in bad debt experience rate.
The company has decided to expand operations and has applied for a sizable bank loan. The
bank officer
has indicated that the records should be audited and presented in comparative statements to
facilitate
analysis by the bank.Sejahtera Co. therefore hired the auditing firm of Check & Doublecheck Co.
and has
provided the following additional information.
1. In early 2013, Sejahtera Co. changed its estimate from 2% to 1% on the amount of bad
debt expense to be charged to operations. Bad debt expense for 2012, if a 1% rate had
been used, would have been €10,000. The company therefore restated its net income for
2012.
2. In 2015, the auditor discovered that the company had changed its method of inventory
pricing from average-cost o FIFO. The effect on the income statements for the previous
years is as follows.
2012 2013 2014 2015
Net income unadjusted – average-cost €140.000 €160.000 €205.000 €276.000
basis
Net income unadjusted – FIFO basis 155.000 165.000 215.000 260.000
Difference 15.000 5.000 10.000 (16.000)
3. In 2015, the auditor discovered that the company incorrectly overstated the ending
inventory by $14,000 in 2014.
Instructions
a. Indicate how each of these changes or corrections should be handled in the accounting
records. (Ignore income tax considerations.)
b. Present comparative net income number for the years 2012 to 2015.(Ignore income tax
considerations.)
PROBLEM 3
PROBLEM 3A. Explain the difference between counterbalance and non-counterbalance error.
Determine whether the example is counterbalance or non-counterbalance error, and prepare
the journal under assumption (i) the company has not closed the book, (ii) the company has
closed the book!
1. The wages for 2016 is paid on January 2017 $ 1000, identified on Dec, 31 2017 (now).
2. Mistake of expensing the machine costing $ 50.000 with no residual value and 5 years life on 1
Jan 2015 identified on Dec,31 2016 (now).
PROBLEM 3B. As an Interns, you have been assigned to examine error in financial statement of
MATCHA company, You discovered following situations;
a. Depreciation of Vehicle for 2015 and 2014 $ 3.200 not recorded.
b. the physical inventory measurement on Dec,31 2014 did not include merchandise
inventory costing $ 19.000 that had been temporarily stored in public warehouse.
MATCHA used periodic inventory system.
c. A collection of $ 5.600 on account from customer, OREO, on dec,31 2015 was not
recorded until January 2016.
d. MATCHA has portfolio investment that it manages for short term price fluctuation. No
entry has been made to adjust the price change.