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Chapter 13: Q15SE_1 (page 710)

Analyzing the effect of prior-period adjustments

Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of \(70,000 for utilities expense. The correct amount of the utilities expense was \)35,000.

Requirements

1. Determine the effect of the error on the accounting equation in 2018.

Short Answer

Expert verified

In 2018 the error overstated utilities expense by $35,000 due to which Owner’s equity is understated by $35,000.

Step by step solution

01

Basic Introduction

The accounting equation expresses that a corporation's total assets are equal to the sum of liabilities and shareholders' equity of the corporation.

02

The effect of the error on the accounting equation

Utilities expense is overstated by $35,000

Net income is understated by $35,000

Owner’s equity is understated by $35,000

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Most popular questions from this chapter

What are the three relevant dates involving cash dividends? Describe each.

Rocky Corporation’s accounting records include the following items, listed in no particular order, at December 31, 2018:

Other Income and (Expenses) \( (6,000) Cost of Goods Sold \) 29,200

Net Sales Revenue 70,800 Operating Expenses 22,000

Gain on Discontinued Operations 4,800

The income tax rate for Rocky Corporation is 30%. Prepare Rocky’s income statement for the year ended December 31, 2018.

Omit earnings per share. Use a multi-step format

What is a prior-period adjustment?

Journalizing a stock dividend and reporting stockholders’ equity

The stockholders’ equity of Lakeside Occupational Therapy, Inc. on December 31, 2017, follows:

Common Stock—\(1 Par Value; 1,200 shares

authorized, 400 shares issued and outstanding

Paid-In Capital:

120,000

400

2,000

Retained Earnings

Total Stockholders’ Equity \) 122,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 1,600

Total Paid-In Capital

\(

On April 30, 2018, the market price of Lakeside’s common stock was \)16 per share and the company declared a 13% stock dividend. The stock was distributed on May 15.

Requirements

1. Journalize the declaration and distribution of the stock dividend.

Question: Identifying sources of equity, stock issuance, and dividends

Tillman Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:

Preferred Stock—5%, ? Par Value; 625,000 shares

authorized, 325,000 shares issued and outstanding

Paid-In Capital:

\( 1,300,000

1,350,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,600,000

Total Paid-In Capital 5,250,000

Retained Earnings 11,800,000

Total Stockholders’ Equity \) 17,050,000

Common Stock—$1 Par Value; 7,000,000 shares

authorized, 1,350,000 shares issued and outstanding

Requirements

2. What is the par value per share of Tillman Comfort Specialists’ preferred stock?
See all solutions

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