Problem 16-1

Requirement 1:
2019 2020
Net income 1,750,000 2,000,000
Salary omitted
2019 -100,000 100,000
2020 -140,000
Inventory December 31, 2019 - overstated -190,000 190,000
Prepaid insurance unrecorded on December 31,2020 120,000
Intererest receivable unrecorded on December 31, 2020 20,000
Other income overstated -160,000
Depreciation overstated 40,000
Corrected net income 1,460,000 2,170,000

Requirement 2
Book are open
Adjusting entries - DECEMBER 31,2020
1. Retained earnings 100,000
Salaries 100,000

Salaries 14,000
Accrued salaries payable 140,000

2. Retained earnings 190,000

Inventory - January 01,2020 190,000

3. Prepaid insurance 120,000

Insurance 120,000

4. Accrued interest receivable 20,000

Interest income 20,000

5. Miscellaneous income 220,000

Accumulated depreciation 240,000
Equipment 400,000
Gain on sale of equipment 60,000

Accumulated depreciation 40,000

Depreciation 40,000

Book Closed
Adjusting Entries December 31,2020
1. Retained earnings 140,000
Accrued salaries payable 140,000
2. No adjustment

3. Prepaid insurance 120,000

Retained earnings 120,000

4. Accrued interest receivable 20,000

Retained earnings 20,000

5. Retained earnings 160,000

Accumulated depreciation 240,000
Equipment 400,000

Accumulated depreciation 40,000

Retained earning 40,000

Problem 16-5
Answer = A. 4,750,000

Income before tax 5,000,000

Prepaid insurance 200,000
Accrued wages -250,000
Rent revenue collected in advance -300,000
Interest receivable 100,000
Corrected inclme before tax 4,750,000

Problem 16-8
Answer = D. 450,000 understated
Net income 2020
Ending inventory overstated/understated:
2019 overstated 150,000
2020 understated 200,000

Rent expense overstated/understated:

2019 understated
2020 overstated 100,000
450,000
Problem 16-11
Answer:
Questions:
1. A. 3,830,000
2. A. 14,000,000
2018 2019 2020
Unrecorded sales commission 2018 -220,000 220,000
2019 -140,000 140,000
Ending inventory 2018 understated 400,000 -400,000
2019 overstated -540,000 540,000
2020 understated 150,000
Correction to net income 180,000 -860,000 830,000

Net income 3,000,000

Correction to net income 830,000
Adjusted net income 3,830,000

Correction 2018 180,000

Correction 2019 -860,000
-680,000

Unadjusted RE 12,600,000
Prior period errors -680,000
Corrected balance 11,920,000
Adjusted net income 3,830,000
Dividends declared -1,750,000
Adjusted RE 14,000,000

Problem 16-14
Answer:
Questions
1. A. 250,000 understated
2. B. 1,150,000 overstated
3. D. 900,000 overstated
2019 2020
December 31, 2019 Inventory - under 500,000 -500,000
Unrecorded purchases in 2019 -500,000 500,000
December 31, 2020 inventory - over -800,000
2019 depreciation - over 250,000
December 31, 2020 accrued rent income - over -300,000
December 31, 2020 accrued salaries - under -150,000
Unrecorded gain in 2020 100,000
Net corrections 250,000 -1,150,000

Effect on 2019 net income 250,000

Effect on 2020 net income -1,150,000
Net eefect on retained earnings - December 31, 2020 -900,000

Problem 16-17
Answer = A. 2,650,000

Net income 2,000,000

Beginning inventory over 300,000
Ending inventory under 500,000
Unrecorded insurance 2020 -50,000
Cash advance credited to dales -100,000
Corrected Net income 2,650,000

Problem 16-19
1. D. Overstate cost of goods sold
2. C. Overstate cost of goods availabe for eale
3. D. Statement of financial position not to be missstated in the next year end
4. A. Overstate owner's equity
5. C. No effect on net income, working capital and retained earnings
6. C. The current year's net income is overstated
7. B. Understated
8. A. Cost od goods sold would be overstated
9. A. Understated and asset are correctly stated
10. B. Understated ending inventory
Problem 16-2
2019 2020
Net income 3,000,000 4,000,000
December 31,2019 Invetory understated 20,000 -20,000
December 31, 2020 Inventory overstated -18,000
Depreciation for 2019 Understated -4,000
Prepaid insurance unrecorded on December 31, 2019 10,000 -5,000
Gain on sale of machinery 32,000
Corrected net income 3,026,000 3,989,000

Adjusting entries - December 31, 2020

1. Inventory - January 01, 2020 20,000
Retained earnings 20,000

2. Profit and loss 18,000

Inventory - december 31, 2020 18,000

3. Retained earnings 4,000

Accumulated depreciation 4,000

4. Prepaid insurance 5,000

Insurance 5,000
Retained earjings 10,000

5. Cash 32,000
Sccumulated depreciation 200,000
Machinery 200,000
Gain on sale of machinery 32,000

Problem 16-3
2019 2020
Net income 4,000,000 5,000,000
Collection of December 31, 2020 recorded on 2021
Unrecorded purchase in 2020 -160,000
Depreciation for 2019 understated -90,000
Office supplies charged to purchases in 2020
Unrecorded sales in 2012 300,000
Corrected net income 3,910,000 5,140,000

Adjusting entries - Decber 31, 2020

1. Cash 100,000
Accounts receivable 100,000
2. Purchaes 160,000
Accounts payable 160,000

3. Retained earnings 90,000

Accumulated depreciation 90,000

4. Office supplies 20,000

Purchases 20,000

5. Accounts receivable 300,000

Sales 300,000

Problem 16-6
Answer = B. 250,000 decrease
2019 2020
Inventory overstated/understated:
2019 understated 200,000 -200,000
2020 overstated -300,000

Depreciation overstated/understated:
2019 understated -50,000
2020 overstated 100,000

Net decrease

Problem 16-9
Questions:
1. A. 250,000 understated
2. B. 300,000 overstated
3. C. 50,000 overstated
2019 2020
Ending Inventory Overstated/understated:
2019 understated 200,000 -200,000
2020 overstated -300,000

2019 deprection understated -50,000

insurance premium 100,000 -50,000
Gain on sale of machinery 250,000
Net correction 250,000 -300,000
Problem 16-12
Answer = B. 240,000 overstated

Ending inventory overstated/understated

2019 under
2020 over

Depreciation under
Accrued salaries unrecorded:
2019
2020
Net correction to income

Problem 16-15
Answer
Questions
1. D. 5,000 overstated
2. A. 16,000 understated
3. A. 11,000 understated
4. D. 6,000 overstated

2019 inventory over

2020 inventory under
2019 depreciation over
2020 depreciation under
2019 prepaid insurance under
2020 unearned rent income over
2020 accrued salaries undee

Problem 16-18
Answer = A. 5,500,000

Unadjusted net income

Inventory:
2019 over
2020 over
Revenue received in advance
Gain on sales - equipment
Adjusted Net income

Problem 16-20
1. D. Understate liabiilities
2. A. Overstated retained earnings
3. D. Overstated assets
4. C. Prepaid expense adjusted incorrectly
5. C. Prepaid expense overstated for the year
Problem 16-4

Net income reported in 2012

Prepaid insurance - december 31,2020
Inventory - January 01, 2020 understated
Inventory - December 31, 2020 overstated
Accrued taxes - December 31,2020
Advance from customer - December 31, 2020
Corrected net income

Adusting entries - December 31, 2020

1. Prepaid insurance
Insurance

2. Inventory - January 01 ,2020

Retained earnings

3. Inventory - December 31, 2020

Profit and loss

4. Taxes
Accrued taxes payable

5. Sales
Advances from customer
 Problem 16-7
Answer = C. 75,000 overstated
Retained earnings January 1, 2021
Invetory overstated/understated:
2019 understated
-300,000 2020 overstated
Net correction

-50,000
100,000
-250,000

Problem 16-10
Answer
Questions
1. B. 200,000 under
2. A. 300,000 over
3. A. 100,000 over
4. A. 40,000 over

-300000 2019 inventory under

2020 inventory over
-50,000 2019 depreciation under
50,000 2019 prepaid insurance under
250000 2020 Gain on sale - machinery
-50000 Net correction
 2019 2020

100,000 -100,000
-40,000

-40,000 -60,000

-80,000 80,000
-120,000
-20,000 -240,000

Net income Retained earnings

2019 2020 2020
-35,000 35,000 0
10,000 10000
25,000 25,000
 -8,000 -8000
5,000 -5,000 0
4,000 4000
-20,000 -20000
-5,000 16,000 11,000

2019 2020
4,000,000 5,000,000

-50,000 50,000
-150,000
50,000 200,000
400,000
4,000,000 5,500,000

for the year

1,550,000
10,000
-80,000
120,000
-60,000
-100,000
1,440,000

10,000
10,000

80,000
80,000

120,000
120,000

60,000
60,000

100,000
100,000
 2019 2020 Retaing earnings January 01, 2021

60,000 -60,000
-75,000 -75,000
60,000 -135,000 -75,000

2019 2020 Working capital 2020

160,000 -160,000
-150,000 -150,000
-60,000
100,000 -100,000
110,000 110000
200,000 -300,000 -40000
Problem 16-13
Answer:
Questions

2019 2020 2021

Ending inventory over/under
2019 under 50,000 -50,000
2020 over -100,000 -100000

Depreciation over/under
2019 over 150,000 150,000
2020 over 200,000 200000
Net decrease 200,000 50,000 250000

Problem 16-16
Answer = B. 6,400,000

Income per book 6,500,000

Unrecorded purchase -1,000,000
Understatement of ending inventory 1,500,000
Working capital Unrecorded dvertising -500,000
2020 Unearned rent income (300,000 ×4/6) 200,000
Prepaid insurance (200,000 ×6/12) 100,000
10000 Corrected Income 6,800,000
 4000
-20000
-6000