Kitchener
Corporation has followed IFRS and used the accrual basis of accounting for
several years. A review of the records, however, indicates that some expenses
and revenues have been handled on a cash basis because of errors made by an
inexperienced bookkeeper. Income statements prepared by the bookkeeper reported
$29,000 net income for 2010 and $37,000 net income for 2011. Further
examination of the records reveals that the following items were handled improperly:
1.
Rent of $1,300 was received from a tenant in December 2010, but the full amount
was recorded as income at that time even though the rental related to 2011.
2.
Wages payable on December 31 have been consistently omitted from the records of
that date and have been entered instead as expenses when paid in the following
year. The amounts of the accruals that were recorded in this way were as
follows:
Dec.
31, 2009 ……………………….. $1,100
Dec.
31, 2010 ……………………….. 1,500
Dec.
31, 2011 ……………………….. 940
3.
Invoices for office supplies purchased have been charged to expense accounts
when received. Inventories of supplies on hand at the end of each year have
been ignored, and no entry has been made for them. The inventories were as follows:
Dec.
31, 2009……………………….. $1,300
Dec.
31, 2010 ……………………….. 740
Dec.
31, 2011 ……………………….. 1 ,420
Instructions
(a)
Prepare a schedule that shows the corrected net income for the years 2010 and
2011. All listed items should be labelled clearly. Ignore income tax
considerations.
(b)
Prepare the required journal entries to correct the 2011 net income. Assume
that the books are open and ignore income tax considerations.
(c)
Assume that Kitchener had unadjusted retained earnings of $95,000 at January 1,
2010, and of $124,000 at January 1, 2011. Prepare a schedule that shows the
corrected opening retained earnings balances.
(a)
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2010
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2011
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Net income, as reported
Rent received in 2010, earned in 2011
Wages not accrued, 12/31/09
Wages not accrued, 12/31/10
Wages not accrued, 12/31/11
Inventory of supplies, 12/31/09
Inventory of supplies, 12/31/10
Inventory of supplies, 12/31/11
Corrected net income
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$29,000
(1,300
1,100
(1,500
(1,300
740
000,000
$26,740
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)
)
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$37,000
1,300
1,500
(940
(740
1,420
$39,540
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)
)
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(b)
1. Retained
Earnings...................... 1,300
Rent
Revenue....................... 1,300
2. Wages
Expense.......................... 940
Wages
Payable...................... 940
Retained
Earnings...................... 1,500
Wages
Expense...................... 1,500
3. Supplies............................... 1,420
Supplies
Expense................... 1,420
Supplies
Expense....................... 740
Retained
Earnings.................. 740
(c)
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2010
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2011
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Retained earnings, Jan. 1 as reported
Rent received in 2010, earned in 2011
Wages not accrued, 12/31/09
Wages not accrued, 12/31/10
Wages not accrued, 12/31/11
Inventory of supplies, 12/31/09
Inventory of supplies, 12/31/10
Inventory of supplies, 12/31/11
Retained earnings, Jan. 1 as restated
Net income (from part (a))
Retained earnings, Dec. 31
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$95,000
(1,100
1,300
000,000
$95,200
26,740
$121,940
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)
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$124,000
(1,300
(1,500
740
$121,940
39,540
$161,480
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)
)
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