You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2018, you discover the f
ollowing errors related to the 2016 and 2017 financial statements: Inventory at 12/31/16 was understated by $6,800. Inventory at 12/31/17 was overstated by $9,800. On 12/31/17, inventory was purchased for $3,800. The company did not record the purchase until the inventory was paid for early in 2018. At that time, the purchase was recorded by a debit to purchases and a credit to cash. The company uses a periodic inventory system. Required: 1. Assuming that the errors were discovered after the 2017 financial statements were issued, analyze the effect of the errors on 2017 and 2016 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) 2. Prepare a journal entry to correct the errors.
1 answer:
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Answer:
1. What is the amount of profit or loss during December?
- $9,300
2. What were the total expenses for December?
- $12,950
3. How much was paid for rent?
- $1,220
Explanation:
we are missing some numbers, so I looked for a similar question. I found one that was almost identical, but the amount of initial paid in capital varied by a little bit. I still used it with the only difference that I used the given common stock, not the common stock that appears in the picture.
Common stock $29,750
retained earnings for November = $5,000
total assets = $56,150
total stockholders' equity = $38,300
retained earnings = $38,300 - $29,750 = $8,550
- $5,000 from November
- $3,550 from December
December's profit = $3,550 (retained earnings) + $5,750 (dividends) = $9,300
income statement = $27,250 - total expenses = $9,300 + $5,000 = $14,300
total expenses = $27,250 - $14,300 = $12,950
utilities expense = $12,950 - $6,450 - $4,625 - $1,220 = $655
