You
have been assigned to examine the financial statements of Picard Corporation
for the year ended December 31, 2011, as prepared following IFRS. You discover
the following situations:
1.
The physical inventory count on December 31, 2010, improperly excluded
merchandise costing $26,000 that had been temporarily stored in a public
warehouse. Picard uses a periodic inventory system.
2.
The physical inventory count on December 31, 2011, improperly included
merchandise with a cost of $15,400 that had been recorded as a sale on December
27, 2011, and was being held for the customer to pick up on January 4, 2012.
3.
A collection of $6,700 on account from a customer received on December 31,
2011, was not recorded until January 2, 2012.
4.
Depreciation of $4,600 for 2011 on delivery vehicles was not recorded.
5.
In 2011, the company received $3,700 on a sale of fully depreciated equipment
that originally cost $25,000. The company credited the proceeds from the sale
to the Equipment account.
6.
During November 2011, a competitor company filed a patent infringement suit
against Picard, claiming damages of $620,000. The company’s legal counsel has
indicated that an unfavourable verdict is probable and a reasonable estimate of
the court’s award to the competitor is $450,000. The company has not reflected
or disclosed this situation in the financial statements.
7.
A large piece of equipment was purchased on January 3, 2011, for $41,000 and
was charged in error to Repairs Expense. The equipment is estimated to have a service
life of eight years and no residual value. Picard normally uses the
straight-line depreciation method for this type of equipment.
8.
Picard has a portfolio of temporary investments reported as trading investments
at fair value. No adjusting entry has been made yet in 2011. Information on
carrying amounts and fair value is as follows:
Carrying Amount Fair Value
Dec
31, 2010 $95,000 $95,000
Dec
31, 2011 $94,000 $82,000
9.
At December 31, 2011, an analysis of payroll information showed accrued
salaries of $10,600. The Accrued Salaries Payable account had a balance of
$16,000 at December 31, 2011, which was unchanged from its balance at December 31,
2010.
10.
An $18,000 insurance premium paid on July 1, 2010, for a policy that expires on
June 30, 2013, was charged to insurance expense.
11.
A trademark was acquired at the beginning of 2010 for $36,000. Through an
oversight, no amortization has been recorded since its acquisition. Picard
expected the trademark to benefit the company for a total of approximately 12
years.
Instructions
Assume
that the trial balance has been prepared, the ending inventory has not yet been
recorded, and the books have not been closed for 2011. Assuming also that all
amounts are material, prepare journal entries showing the adjustments that are
required. Ignore income tax considerations.
(1)
Inventory.................................. 26,000
Retained
Earnings...................... 26,000
(2)
No entry, as ending inventory has not yet been
recorded.
(3)
Cash....................................... 6,700
Accounts
Receivable.................... 6,700
(4)
Depreciation Expense....................... 4,600
Accumulated
Depreciation—Delivery
Vehicles............................. 4,600
(5)
Accumulated Depreciation—Equipment......... 25,000
Equipment.............................. 21,300
Gain on Sale
of Equipment.............. 3,700
(6)
Estimated Litigation Loss.................. 450,000
Estimated
Litigation Liability......... 450,000
(7)
Depreciation Expense....................... 5,125
Equipment.................................. 41,000
Repairs
Expense........................ 41,000
Accumulated
Depreciation—Equipment..... 5,125
(8)
Investment Income/Loss (FV-NI)............. 12,000
Investments
(FV-NI).................. 12,000
(9)
Accrued Salaries Payable ($16,000 – $10,600) 5,400
Salaries
Expense....................... 5,400
(10)
Insurance Expense ($18,000 ÷ 3)............ 6,000
Prepaid Insurance ($18,000 ÷ 3 X 1.5)...... 9,000
Retained
Earnings...................... 15,000
(11)
Amortization Expense ($36,000 ÷ 12)........ 3,000
Retained Earnings.......................... 3,000
Accumulated
Amortization—Trademark..... 6,000
