Problem 72-4 Penn Campany is in the process of adjusting and carmecting its book
ID: 2565276 • Letter: P
Question
Problem 72-4 Penn Campany is in the process of adjusting and carmecting its books at the end of 2017. In reviewing its records, the following infarmation is compiled. 1. Penn has failed to accrue sales commissions payable at the end of each of the last 2 vears, as ollows $3,500 December 31, 2016 December 31, 201 2,500 2. In reviewing Uhe December 31, 2017, entory, Penn discovered errors in its irventory-takinia procedures that have caused inventories for the last 3 years to be incorrect, as fellows Understated December 31, 2015 Dacember 31, 2016 December 31, 2017 516,000 $19,000 $6,700 Penn has already made an entry that established the incorrect December 31, 2017, inventory amount. ire and no slvage value. Deprec its income from long-term cnstiucthe percentage-of-completion ble-dec r n e method was $36,000. Penn has already recorded 2017 depreciation expense of $12,000 using the double-declining-balance method. 3. At December 31, 2017, Penn decided to change the de reaa on method on its once equipment rom d balance to straight ne The equpment had an ong nal cost 100 000 when purchased on anuary 1 2015 It has a 10-year use ul lfe and no salvage value. Depreciabion expense recorded pnor to 2017 under the 4. Before 2017, Penn accounted for its income from long-term construction contracts on the completed-contract basis, Carly in 2017, Penn changed to the peroentage-of-completion basis for accounting purposes. It continues to use the completed-contract method for tax purposes. Income for 2017 has been recorded using the percentage-of-completion method. The following information is available Pretax Income Prior to 2017 2017 Percentage of Completion $150,000 60,000 Completed Contract $105,000 20,000 Prepare the journal entries necessary at December 31, 2017, to record the above corrections and changes. The books are soll open for 2017. The income tax rate is 40%. Penn has not yet recorded its 2017/ncome tax expense and payable amounts so arrent ear tax effects may be ignored. Prior-year tax effects must be considered in te 4 Credit account titles are utomatically Indented when amount s entered. Do not indent m nually. I no entry s required select No Entry for the account titles and enter o for the amounts.)Explanation / Answer
NUMBER Description Debit Credit 1 retained Earnings 3500 Sales Commission payable 2500 Sales commission expense 1000 2 Cost of goods sold 25700 Retained earnings 19000 inventory 6700 2015 2016 2017 Beginning inventory 16000 19000 Ending inventory -16000 -19000 6700 Overstatement/understatement (-) -16000 -3000 25700 3 Accumulated Depreciation 4800 Depreciation Expense 4800 Cost of the equipment 100000 Depreciation before 2014 -36000 Book value 64000 depreciation already recorded 12800 Depreciation to be recorded 8000 Excess accounted 4800 4 Work in progress (150000-105000) 45000 Deferred tax liability(45000*40%) 18000 Retained Earnings (45000-18000) 27000