Income Statement: Incorrectly Recorded Rent Revenue
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How would I classify the following items on an income statement?
* THE CFO DETERMINED THAT IN 2009 JOHNSON'S ACCOUNTANT INCORRECTLY RECORDED RENT REVENUE WORTH 25,000. THE RENT WAS PAID FIVE YEARS IN ADVANCE IN 2009. THE ERROR WAS NOT DISCOVERED UNTIL DECEMBER 2011. (CURRENT YEAR RENT WAS PROPERLY RECORDED.)
* THE CFO CHANGE THE INVENTORY VALUATION FROM LIFO TO FIFO THIS YEAR. LIFO INVENTORY RESULTS SHOULD BE $50,000 AND UNDER FIFO METHOD IT IS $30,000.
* DURING 2011, JOHNSON SWIM GEAR WROTE OFF $15,000 OF RECEIVABLES THAT WERE OVER FIVE YEARS OLD.
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Solution Summary
This solution explains how to classify each transaction listed on an income statement. I show the student how to adjust the income statement for errors in rent revenue, inventory valuation issues, and writing off receivables that were over five years old. A step by step explanation is provided.
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* THE CFO DETERMINED THAT IN 2009 JOHNSON'S ACCOUNTANT INCORRECTLY RECORDED RENT REVENUE WORTH 25,000. THE RENT WAS PAID FIVE YEARS IN ADVANCE IN 2009. THE ERROR WAS NOT DISCOVERED UNTIL DECEMBER 2011. (CURRENT YEAR RENT WAS PROPERLY RECORDED.)
-- You need to take this out of rent revenue. This is the transaction that would take it back out:
Rent expense 25,000
Prepaid rent 25,000
This would ...
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