Reported in the financial statements as an adjustment

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- recorded in the year in which the error was discovered. - reported in the financial statements as an adjustment to the beginning balance of retained earnings. - known as prior period adjustments. - If comparative financial statements are presented, the prior statements affected by the error should be restated to correct for the error. The disclosures need not be repeated in the financial statements of subsequent periods. - There is no exception due to impracticability for error corrections. The failure to accrue sales commission payable at the end of the last two years is an error that is a counterbalancing error. Counterbalancing errors are errors that occur in one period and correct themselves in the next period. 2013 Error for $3,500: 2013 Expense by $3,500 barb4rightNI is $3,500 barb4rightRE is $3,500 barb4rightcorrected by a debit to RE in entry below. Since the sales commission payable was paid in 2014 barb4right2014 Expense $3,500 barb4rightSales Commission Expense needs to be credited by $3,500 in the entry below due to this error. Retained Earnings.......................................................................................................3,500 Sales Commissions Expense..............................................................................3,500 2014 Error for $2,500: 2014 Expense by $2,500barb4rightSales Commission Expense needs to be debited by $2,500 in the entry below due to this error. 2014 Payable by $2,500 barb4rightSales Commission Payable needs to be credited by $2,500 below due to this error. Sales Commission Expense...............................................................................2,500 Sales Commissions Payable........................................................................2,500 2.Failure to correctly record ending inventory is considered a correction of an error.The FASB requires that corrections of errors be: - recorded in the year in which the error was discovered. - reported in the financial statements as an adjustment to the beginning balance of retained earnings. - known as prior period adjustments. - If comparative financial statements are presented, the prior statements affected by the error should be restated to correct for the error. The disclosures need not be repeated in the financial statements of subsequent periods. - There is no exception due to impracticability for error corrections The errors were as follows: December 31, 2012 ending inventory is understated $16,000 December 31, 2013 ending inventory is understated $19,000 December 31, 2014 ending inventory is overstated $6,700 The entry for 2014 is already recorded in the 2012 inventory account (~ and therefore in the computation of CGS for 2014)
Chapter 22 Homework Solutions ACCO 4020 Kren 10 Problem 22-3 15thedition) – continued: Part 2 continued: 2012 2013 2014 BI OK 16,000 19,000 + P OK OK OK CGA OK 16,000 19,000 (EI) (16,000) (19,000) (6,700) CGS 16,000 Overall 3,000 (16,000 + 19,000) Overall 25,700(19,000 + 6,700) 2012 2013 2014 Sales OK OK OK (CGS) (16,000 ) (3,000) (25,700) GP 16,000 3,000 25,700 (SG&A) ( OK ) ( OK ) (OK) NI 16,000 3,000 25,700 2012 2013 2014 Beg. RE OK 16,000 19,000 Add: NI 16,000 3,000 25,700 Less: Dividends ( OK ) ( OK ) (OK) Ending RE 16,000 19,000 6,700 Assets = Liabilities + Equity 2012 16,000 = OK + 16,000 2013 19,000 = OK + 19,000 2014 6,700 = OK + 6,700 Since records for 2012 and 2013 are closed but records for 2014 are still open the following entry must be recorded in 2014 to correct the errors: 2014 Cost of Goods Sold ($19,000 + $6,700)..........................25,700 entry Retained Earnings.............................................................19,000 Inventory 6,700

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