FINANCE

Question 5

Below is the net income of Anita Ferreri Instrument Co., a private corporation, computed under the three inventory methods using a periodic system.

 

FIFO  Average Cost  LIFO

2012  $26,000   $24,000   $20,000

2013  30,000  25,000  21,000

2014  28,000  27,000  24,000

2015  34,000  30,000  26,000

 

(Ignore tax considerations.)

 

(a) Assume that in 2015 Ferreri decided to change from the FIFO method to the average-cost method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2015, and show net income reported for 2012, 2013, 2014, and 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

 

 

(b) Assume that in 2015 Ferreri, which had been using the LIFO method since incorporation in 2012, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2015 and show net income reported for 2012, 2013, 2014, and 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

 

 

Question 6

The reported net incomes for the first 2 years of Sandra Gustafson Products, Inc., were as follows: 2014, $147,000; 2015, $185,000. Early in 2016, the following errors were discovered.

 

 

1 Depreciation of equipment for 2014 was overstated $17,000.

2 Depreciation of equipment for 2015 was understated $38,500.

3 December 31, 2014, inventory was understated $50,000.

4 December 31, 2015, inventory was overstated $16,200.

 

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

 

 

P20-1 (2-Year Worksheet) On January 1, 2014, Harrington Company has the following defined benefit pension plan balances.

Projected benefit obligation  $4,500,000

Fair value of plan assets  4,200,000

 

The interest (settlement) rate applicable to the plan is  10%  On January 1, 2015, the company amends its pension

agreement so that service costs of  $500,000   are created.  Other data related to the pension plan are as follows:

 

2012  2013

Service costs  $150,000   $180,000

Prior service costs amortization  0   90,000

Contributions (funding) to the plan  240,000   285,000

Benefits paid  200,000   280,000

Actual return on plan assets  252,000   260,000

Expected rate of return on assets  6%  8%

 

Instructions:

(a) Prepare a pension worksheet for the pension plan for 2014 and 2015.

(b) For 2015, prepare the journal entry to record pension-related amounts.

 

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