Learning Materials
Features
Discover
Chapter 22: 22-1IFRS (page 1328)
Where can authoritative IFRS related to accounting changes be found?
IFRS is the set of accounting rules and authoritative for an accounting change found in IAS 8 and IAS 1.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
You have been asked by a client to review the records of Roberts Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Your examination reveals the following information.
1. Roberts Company commenced business on April 1, 2015, and has been reporting on a fiscal year ending March 31. The company has never been audited, but the annual statements prepared by the bookkeeper reflect the following income before closing and before deducting income taxes.
Year Ended March 31 Income Before Taxes
2016 \( 71,600
2017 111,400
2018 103,580
2. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31 of each year, machines billed and in the hands of consignees amounted to:
2016 \)6,500
2017 none
2018 5,590
Sales price was determined by adding 25% to cost. Assume that the consigned machines are sold the following year.
3. On March 30, 2017, two machines were shipped to a customer on a C.O.D. basis. The sale was not entered until April 5, 2017, when cash was received for \(6,100. The machines were not included in the inventory at March 31, 2017. (Title passed on March 30, 2017.)
4. All machines are sold subject to a 5-year warranty. It is estimated that the expense ultimately to be incurred in connection with the warranty will amount to ½ of 1% of sales. The company has charged an expense account for warranty costs incurred. Sales per books and warranty costs were as follows.
Year Ended March 31 Sales Warranty Expense for Sales Made in
2016 2017 2018 Total
2016 \) 940,000 \(760 \) 760
2017 1,010,000 360 \(1,310 1,670
2018 1,795,000 320 1,620 \)1,910 3,850
Bad Debts Incurred on Sales Made in Bad Debt Expense 2016 2017 2018 Total Based on 1% of Receivables 2016 \(750 \) 750 \(2,334 2017 800 \) 520 1,320 2,557 2018 350 1,800 \(1,700 3,850 4,458
5. Bad debts have been recorded on a direct write-off basis. Experience of similar enterprises indicates that losses will approximate 1% of receivables. Bad debts written off were:
6. The bank deducts 6% on all contracts financed. Of this amount, ½% is placed in a reserve to the credit of Roberts Company that is refunded to Roberts as finance contracts are paid in full. (Thus, Roberts should have a receivable for these payments and should record revenue when the net balance is remitted each year.) The reserve established by the bank has not been reflected in the books of Roberts. The excess of credits over debits (net increase) to the reserve account with Roberts on the books of the bank for each fiscal year were as follows. 2016 \) 3,000 2017 3,900 2018 5,100 \(12,000
7. Commissions on sales have been entered when paid. Commissions payable on March 31 of each year were as follows. 2016 \)1,400 2017 900 2018 1,120
8. A review of the corporate minutes reveals the manager is entitled to a bonus of 1% of the income before deducting income taxes and the bonus. The bonuses have never been recorded or paid.
Instructions
(a) Present a schedule showing the revised income before income taxes for each of the years ended March 31, 2016, 2017, and 2018. (Make computations to the nearest whole dollar.)
(b) Prepare the journal entry or entries you would give the bookkeeper to correct the books. Assume the books have not yet been closed for the fiscal year ended March 31, 2018. Disregard correction of income taxes.
In January 2017, installation costs of \(6,000 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of \)30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no salvage value. At December 31, 2018, it is decided that the machinery has a remaining useful life of 20 years, starting with January 1, 2018. What entry(ies) should be made in 2018 to correctly record transactions related to machinery, assuming the machinery has no salvage value? The books have not been closed for 2018 and depreciation expense has not yet been recorded for 2018.
What reporting requirements does retrospective application require?
(Error Analysis) When the records of Debra Hanson Corporation were reviewed at the close of 2018, the following errors were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2017 and 2018.
2017 2018 Over- Under- No Over- Under- No Item statement statement Effect statement statement Effect
1. Failure to record amortization of patent in 2018.
2. Failure to record the correct amount of ending 2017 inventory. The amount was understated because of an error in calculation.
3. Failure to record merchandise purchased in 2017. Merchandise was also omitted from ending inventory in 2017 but was not yet sold.
4. Failure to record accrued interest on notes payable in 2017; that amount was recorded when paid in 2018.
5. Failure to reflect supplies on hand on the balance sheet at end of 2017.
Sesame Company purchased a computer system for \(74,000 on January 1, 2016. It was depreciated based on a 7-year life and an \)18,000 salvage value. On January 1, 2018, Sesame revised these estimates to a total useful life of 4 years and a salvage value of $10,000. Prepare Sesame’s entry to record 2018 depreciation expense. Sesame uses straight-line depreciation.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Exams 
GCSE 
IGCSE 
AS 
A Level 
International A Level 
University Admissions Tests 
Flashcards 
Vaia AI 
Notes 
Study Plans 
Study Sets 
Find a job 
Find a degree 
Student Deals 
Magazine 
Mobile App