week 3 E2-14 - discover that supplies costing $750 were on...

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E 2-14 Accrual accounting income determination LO4 LO8 During the course of your examination of the financial statements of the Hales Corporation for the year ended December 31, 2006, you discover the following: a. An insurance policy covering three years was purchased on January 1, 2006, for $6,000. The entire amount was debited to insurance expense and no adjusting entry was made for this item. b. During 2006, the company received a $1,000 cash advance from a customer for merchandise to be manufactured and shipped in 2007. The $1,000 was credited to sales revenue. No entry was made for the cost of merchandise. c. There were no supplies listed in the balance sheet under assets. However, you
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Unformatted text preview: discover that supplies costing $750 were on hand at December 31. d. Hales borrowed $20,000 from a local bank on October 1, 2006. Principal and interest at 12% will be paid on September 30, 2007. No accrual was made for interest. e. Net income reported in the 2006 income statement is $30,000 before reflecting any of the above items. Required: Determine the proper amount of net income for 2006. Unadjusted net income $ 30000 Adjustments: a. Insurance expense overstated + 4,000 b. Sales revenue overstated-1000 c. Supplies expense overstated + 750 d. Interest expense understated-600 Adjusted net income $ 33,150...
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This note was uploaded on 03/30/2010 for the course COB ACCY 202 taught by Professor Shapland during the Spring '10 term at University of Illinois, Urbana Champaign.

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