ACC 550 CA5-1
2 Pages

ACC 550 CA5-1

Course Number: ACCOUTNING 550, Spring 2012

College/University: DeVry Houston

Word Count: 363

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In an examination of Arenes Corporation as of December 31, 2010, you have learned that the following situationsexist.Noentrieshavebeenmadeintheaccountingrecordsfortheseitems. 1. Thecorporationerecteditspresentfactorybuildingin1995.Depreciationwascalculatedbythestraightline method,usinganestimatedlifeof35years.Earlyin2010,theboardofdirectorsconductedacarefulsurvey...

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an In examination of Arenes Corporation as of December 31, 2010, you have learned that the following situationsexist.Noentrieshavebeenmadeintheaccountingrecordsfortheseitems. 1. Thecorporationerecteditspresentfactorybuildingin1995.Depreciationwascalculatedbythestraightline method,usinganestimatedlifeof35years.Earlyin2010,theboardofdirectorsconductedacarefulsurvey andestimatedthatthefactorybuildinghadaremainingusefullifeof25yearsasofJanuary1,2010. 2. Anadditionalassessmentof2009incometaxeswasleviedandpaidin2010. 3. WhencalculatingtheaccrualforofficerssalariesatDecember31,2010,itwasdiscoveredthattheaccrual forofficerssalariesforDecember31,2009,hadbeenoverstated. 4. OnDecember15,2010,ArenesCorporationdeclaredacashdividendonitscommonstockoutstanding, payableFebruary1,2011,tothecommonstockholdersofrecordDecember31,2010. Instructions Describe fully how each of the items above should be reported in the financial statements of Arenes Corporationfortheyear2010. SOLUTION 1. Thenewestimatewouldbeusedincomputingdepreciationexpensefor2010.Noadjustmentofthe depreciablecostwouldbedividedbytheestimatedremaininglife.Thisisachangeinanestimateandis balanceinaccumulateddepreciationatthebeginningoftheyearwouldbemade.Instead,theremaining accountedforprospectively(inthecurrentandfutureyears).Disclosureinthenotestothefinancial statementsisappropriate,ifmaterial. 2. Theadditionalassessmentshouldbeshownonthecurrentperiodsincomestatement.Ifmaterialit shouldbeshownseparately;ifimmaterialitcouldbeincludedwiththecurrentyearstaxexpense.This transactiondoesnotrepresentapriorperiodadjustment. 3. TheeffectoftheerroratDecember31,2009,shouldbeshownasanadjustmentofthebeginning balanceofretainedearningsontheretainedearningsstatement.Thecurrentyearsexpenseshouldbe adjusted(ifnecessary)forthepossiblecarryforwardoftheerrorintothe2010expensecomputation. 4. Generally,anentryismadeforacashdividendonthedateofdeclaration.Theappropriateentrywould beadebittoRetainedEarnings(orDividends)fortheamounttobepaid,withacorrespondingcreditto DividendsPayable.Dividendspayableisreportedasacurrentliability.

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DeVry Houston - ACCOUTNING - 550
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DeVry Houston - ACCOUTNING - 550
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DeVry Houston - ACCOUTNING - 550
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DeVry Houston - ACCOUTNING - 550
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DeVry Houston - ACCOUTNING - 550
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