Question & Answer: Correct the red marks…..

Problem 118 The accountant preparing the income statement for Bakersfield, Inc. had some doubts about the appropriate accounting treatment of the seven items listed below during the fiscal year ending December 31, 2017 Aesiume a tax rate of 40 percent. Assignment page 1. Office equipment purchased January 1, 2017 for $63,510 was incorrectly charged to Supplies Expense at the time of purchase. The office equipment has an estimated three-year service life with no expected salvage value. Bakersfield uses the straight-line method to depreciate office equipment for financial reporting purposes. Due to the error in recording the asset as an expense, the depreciation entry has not been recorded 2. The corporation disposed of its sporting goods division during 2017. This disposal meets the criteria for discontinued operations. The division correctly calculated income from operating this division of $101,250 before taxes and a loss of $11,000 before taxes on the disposal of the division. All of these events occurred in 2017 and have not been recorded. 3. The company recorded advances of $11,100 to employees made December 31, 2017 as Salaries and Wages Expense 4. Dividends of $11,100 during 2017 were recorded as an operating expense. 5. In 2017, Bakersfield changed its method of accounting for inventory from the first-in-first-out method to the average cost method. Inventory in 2017 was correctly recorded using the average cost method. The new inventory method would have resulted in an additional $120,940 of cost of goods sold (before taxes) being reported on prior years’ income statement. 6. On January 1, 2013, Bakersfield bought a building that cost $85,000, had an estimated useful life of ten years, and had a salvage value of $5,000. Bakersfield uses the straight-line depreciation method to depreciate the building. In 2017, it was estimated that the remaining useful life was eight years and the salvage value was zero. Depreciation expense reported on the 2017 income statement was correctly calculated based on the new estimates. No adjustment for prior years’ depreciation estimates was made. Your answer is partially correct. Try again. For each item, record corrections to income from continuing operations before taxes, if any. (If there is no effect then please enter 0.) Increase (Decrease) to Income from Continuing Operations No. Description 1. Office equipment purchased January 1, 2017 for $63,510 was incorrectly charged to Supplies Expense at the time of purchase. The office equipment has an estimated three-year service life with no expected salvage value. Bakersfield uses the straight-line method to depreciate office equipment for financial reporting purposes. Due to the error in recording the asset as an expense, the depreciation entry has not been recorded 42340 2. The corporation disposed of its sporting goods division during 2017. This disposal meets the criteria for discontinued operations. The division correctly calculated income from operating this division of $101,250 before taxes and a loss of $11,000 before taxes on the disposal of the division. All of these events occurred in 2017 and have not been recorded 11100 3. The company recorded advances of $11,100 to employees made December 31, 2017 as Salaries and Wages Expense