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Chapter 13: Q15SE_2 (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

2. How should this error be reported in the 2019 financial statements?

Short Answer

Expert verified

The error will be added as a prior period adjustment of $35,000 to the beginning balance of the retained earnings in the Statement of Retained Earnings.

Step by step solution

01

Basic Introduction-

Retained earnings are the amount of profit remains with a corporation after payment of all direct costs, indirect costs, income taxes and dividends to stockholders of the corporation.

02

Reporting the error in 2019-

Statement of Retained Earnings

Beginning retained earnings

xxx

Add: Prior period adjustment ($70,000 - $35,000)

$35,000

Less: Dividend paid (if any)

(xxx)

Ending retained earnings

xxx

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Most popular questions from this chapter

What are the basic rights of stockholders?

Computing rate of return on common stockholders’ equity Wyler, Inc.’s 2018 balance sheet reported the following items—with 2017 figures given for comparison:

Total Assets Total Liabilities and Stockholders’ Equity Total Liabilities Total Stockholders’ Equity (all common) WYLER, INC. Balance Sheet As of December 31, 2018, and December 31, 2017 \( 39,600 December 31, 2018 17,100 22,500 18,500 14,962 December 31, 2017 \) 39,600 \( 33,462 \) 33,462 Net income for 2018 was $3,690.

Compute Wyler’s rate of return on common stockholders’ equity for 2018.

A Identifying sources of equity, stock issuance, and dividends

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

Preferred Stock—7%, ? Par Value; 625,000 shares

authorized, 280,000 shares issued and outstanding

Paid-In Capital:

\( 1,400,000

1,340,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,900,000

Total Paid-In Capital 5,640,000

Retained Earnings 12,000,000

Total Stockholders’ Equity \) 17,640,000

Common Stock—$1 Par Value; 3,000,000 shares

authorized, 1,340,000 shares issued and outstanding

Requirements

3. Make two summary journal entries to record issuance of all the Voyage Comfort Specialists’ stock for cash. Explanations are not required.

London Corporation has two classes of stock: Common, \(1 par value; and Preferred, \)4 par value. Journalize the issuance of 10,000 shares of common stock for $8 per share.

Computing price/earnings ratio Refer to the HEB data in Short Exercise S13-17. Assume the market price of HEB’s common stock is $19.50 per share. Compute HEB’s price/earnings ratio.
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