Question

Analysis and Correction of Errors ACPA was engaged by Blackbird Company in 2015 to examine its books and records and to make whatever corrections are necessary. An examination of the accounts discloses the following. (a) Dividends had been declared on December 15 in 2012 and 2013 but had not been entered in the books until paid. (b) Improvements in buildings and equipment of $10,800 had been debited to expense at the end of April 2011. Improvements are estimated to have a 12-year life. The company uses the straight-line method in recording depreciation and computes depreciation to the nearest month. The physical inventory of merchandise had been understated by $3,200 at the end of 2012 and by $4,750 at the end of 2013. (d) The merchandise inventories at the end of 2013 and 2014 did not include merchandise that was then in transit and to which the company had title. These shipments of $2,100 and $2,900 were recorded as purchases in January of 2014 and 2015, respectively. (e) The company had failed to record sales commissions payable of $3,600 and $1,100 at the end of 2013 and 2014, respectively. ( The company had failed to recognize supplies on hand of $850 and $1,720 at the end of 2013 and 2014, respectively The retained earnings account appeared as shown below on the date the CPA began the examination,

Answer 1

2012 2013 89925 2014 91025 (19,300) 65.000 28.000 Earning (15,500) (17,800) 15,500 (15,500) 15,500 9225 (101 2.5 - 900) (900) (900) (3200) (4750) Particulars Opening Bal of Retained Income / Less of year Adjustments (1) Dividend Declared on Dec 15, 2012 i) Dividend declared on Dec 15, 2013 ini) Improvements in - Building & Equipment (Working Note 1) liv Understatement of opening Inventory (v) Understatement of closing Inventory Stock in transit not included un inventory (working Not (vii) Sales commission payable wil) Supplies as hand not recognised (ix) Stock sold-excess Over par Closing balance of Retained Earing after Alicements 3200 4750 (vi) (600) (1100) 850 1420 21000 89 925 91025 82195

2011 2012 2013 2014. Working Notel Particulars (i) Increase in net un come in year of purchased (1) Depreciation for the year 10800 (900) (900) 1645) (900) 10125 (900) To be adjusted from opening bal. of retained earnings I in 2012. (900) (900) Working Note : The merchandise in Transit will not have any effect on the balance of retained earnings because the entry on one side, it will increase the ramount of purchases during the year and on other side, it will increase the closing stock of the company at the year end.