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Problem II ? 25 Points Part A ? 15 Points Vance...

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Problem II ? 25 Points Part A ? 15 Points Vance Company reported net incomes for a three-year period as follows: 2011, $191,000; 2012, $199,000; 2013, $180,000. In reviewing the accounts in 2014 after the books for the prior year have been closed, you find that the following errors have been made in summarizing activities: 2011 2012 2013 Overstatement of ending inventory $42,000 $51,000 $29,000 Understatement of accrued advertising expense 6,600 12,000 7,200 Instructions (a) Fill out the worksheet below to determine corrected net incomes for 2011, 2012, and 2013. Be sure to use ( ) to indicate subtraction or decreasing amounts. Items 2011 2012 2013 Net income (unadjusted) $191,000 $199,000 $180,000 Overstatement of ending inventory?2011 Overstatement of ending inventory?2012 Overstatement of ending inventory?2013 Understatement of accrued advertising expense?2011 Understatement of accrued advertising expense?2012 Understatement of accrued advertising expense?2013 ______ Net income (corrected) $ $ $ (b) Give the entry to bring the books of the company up to date in 2014, assuming that the books have been closed for 2013. Part B ? 10 Points Show how the following independent errors will affect the net income on the Income Statement and the Balance Sheet using the symbol + (plus) for overstated, - (minus) for understated, and 0 (zero) for no effect. 2012 2013 Income Balance Income Balance Statement Sheet Statement Sheet EXAMPLE: Recorded 2012 rent expense in 2013. + + - 0 1. Ending Inventory in 2012 overstated. 2013 ending inventory is correct. 2. Failed to accrue 2012 interest revenue until 2013. 3. A capital expenditure for factory equipment (useful life 5 years) was erroneously charged to maintenance expense in 2012. Not corrected. 4. Failed to count office supplies on hand at 12/31/12. Cash expenditures have been charged to Supplies Expense during the year 2012. Supplies were used in 2013.1 5. Failed to accrue 2012 wages. Recorded and paid in 2013. 1This is an example of initially recording supplies as an expense rather than an asset, which is permissible. The Company then neglected to make the adjusting journal entry (deferral) at the end of 2012. Problem III ? 30 Points Part A ? 20 Points The net changes (not balances) in the selected balance sheet accounts of Keating Corporation for the year 2013 are shown below. Account Debit Credit Short-term investments $121,000 Accounts receivable 83,200 Allowance for doubtful accounts 13,300 Inventory 74,200 Prepaid expenses 22,800 Investment in subsidiary (equity method) 25,000 Plant and equipment 210,000 Accumulated depreciation 130,000 Accounts payable 80,700 Accrued liabilities 21,500 Deferred tax liability 15,500 8% serial bonds, long-term 70,000 Common stock, $10 par 90,000 Additional paid-in capital 150,000 Retained earnings?Appropriation for bonded indebtedness 60,000 Retained earnings?Unappropriated 38,000 An analysis of the Retained Earnings?Unappropriated account follows: Retained earnings unappropriated, December 31, 2012 $1,300,000 Add: Net income 327,000 Transfer from appropriation for bonded indebtedness 60,000 Total $1,687,000 Deduct: Cash dividends $185,000 Stock dividend 240,000 425,000 Retained earnings unappropriated, December 31, 2013 $1,262,000 1. On January 2, 2013 short-term investments (classified as available-for-sale) costing $121,000 were sold for $145,000. 2. The company paid a cash dividend on February 1, 2013. 3. Accounts receivable of $16,200 and $19,400 were considered uncollectible and written off in 2013 and 2012, respectively. 4. Major repairs of $33,000 to the equipment were correctly debited to the Accumulated Depreciation account during the year. No assets were retired during 2013. (HINT: This also impacts investing activities.) 5. The wholly owned subsidiary reported a net loss for the year of $20,000. The loss was recorded by the parent. 6. At January 1, 2013, the cash balance was $166,000. Instructions Prepare a statement of cash flows (indirect method) for the year ended December 31, 2013. Keating Corporation has no securities which are classified as cash equivalents. Keating Corporation Statement of Cash Flows For the Year Ended December 31, 2013 Increase (Decrease) in Cash Cash flows from operating activities Net income $327,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense $ ________ Net cash provided (used) by operating activities $ Cash flows from investing activities _________ Net cash provided (used) by investing activities $ Cash flows from financing activities _________ Net cash provided (used) by financing activities $ Net increase in cash $ Cash, January 1, 2013 166,000 Cash, December 31, 2013 $ Part B ? 10 Points Hartman, Inc. has prepared the following comparative balance sheets for 2012 and 2013: 2013 2012 Cash $ 287,000 $ 153,000 Accounts receivable 149,000 117,000 Inventory 150,000 180,000 Prepaid expenses 18,000 27,000 Plant assets 1,280,000 1,050,000 Accumulated depreciation (450,000) (375,000) Patent 153,000 174,000 $1,587,000 $1,326,000 Accounts payable $ 153,000 $ 168,000 Accrued liabilities 60,000 42,000 Mortgage payable ? 450,000 Preferred stock 525,000 ? Additional paid-in capital?preferred 120,000 ? Common stock 600,000 600,000 Retained earnings 129,000 66,000 $1,587,000 $1,326,000 1. The Accumulated Depreciation account has been credited only for the depreciation expense for the period. 2. The Retained Earnings account has been charged for dividends of $158,000 and credited for the net income for the year. The income statement for 2013 is as follows: Sales $1,980,000 Cost of sales 1,089,000 Gross profit 891,000 Operating expenses 670,000 Net income $ 221,000 Instructions From the information above, prepare a schedule of cash provided (used) by operating activities using the direct method on the next page. You do not have to reconcile to the indirect method. ? Hartman, Inc. Schedule of Cash Provided by Operating Activities ? Direct Method For Year Ended December 31, 2013 Increase (Decrease) in Cash Cash flows from operating activities Cash received from customers (1) $ Cash paid to suppliers (2) Operating expenses paid (3) Net cash provided by operating activities $ SHOW NUMERIC COMPUTATIONS HERE FOR (1), (2), and (3) above: (1) (2) (3) Problem IV ? 15 Points An article in Dun's Review made the following comment: "Every other year, say, companies should print the notes in big type and the base figures in smaller ones." Instructions Answer the following two questions. You do not need to write more than a paragraph or at most two for each question ? be concise. (a) Are notes considered as part of the financial statements and what basic purpose do they serve? (b) What are the general types of notes to the financial statements?

 

Paper#8040 | Written in 18-Jul-2015

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