Adjustment and Depreciation Expense
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Question no. 38
On December 31, 2004, special insurance costs, incurred but unpaid, where not recorded. If these insurance costs were related to work in process, what is the effect of the omission on accrued liabilities and retained earnings in the December 31, 2004 balance sheet?
Accrued Liabilities / Retained Earnings
a. No effect / No effect
b. No effect / Overstated
c. Understated / No effect
d. Understated / Overstated
Question 39
Fleer, INc. is a calendar-year corporation whose financial statements for 2004 and 2005 included errors as follows:
Year / Ending Inventory / Depreciation Expense
2004 / $54,000 overstated / $45,000 overstated
2005 / 18,000 understated / 15,000 understated
Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2004, or at December 31, 2005. Ignoring income taxes, by how much should Fleer's retained earnings be retroactively adjusted at January 1, 2006?
Question 40
On January 1, 2004, Doane Corp. acquired a machine at a cost of $300,000. It is to be depreciated on the straight-line method over a five-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Doane's 2004 financial statements. The oversight was discovered during the preparation of Doane's 2005 financial statements. Depreciation expense on this machine for 2005 should be?
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Solution Summary
In an attached Word document, this solution provides answers in regards to the effect of omission, retroactive adjustment, and depreciation expense.
Education
- BA, Ain Shams University, Cairo Egypt
- MBA, California State University, Sacramento
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