In 2015, ABC Company noted that it incorrectly recorded sales in 2014 Financial

Question

In 2015, ABC Company noted that it incorrectly recorded sales in 2014 Financial Statements that was made on account. The sales that was recognized was S100,000 and CoGS was $60,000. Record the entry to correct this error assuming the tax rate used was 20% Retained Earnings Income Tax Payable Inventory 32,000 A 8,000 B 60,000 C Accounts Receivable 100,000 D Entries that were incorrectly made in 2014 Accounts Receivable Revenues 100,000 D 00,o0o Cost of Sales Inventory 60,000 60,000 C As Part of the Separate Income Tax entry made: Income Tax Exp 2096 Income Tax Payable 8,o0o 8,000 B In 2015, you correct by taking entire change to Income Statement to Retained Earnings Sales Incorrectly Booked Less: COS Incorrectly Booked Less: Income Taxes Incorrectly Booked Net Change to Retained Earnings

Explanation / Answer

Solution:

Computation of Changes in retained earnings - ABC Company Particulars Amount Sales incorrectly booked $100,000.00 Less: COS incorrectly booked $60,000.00 Less: Income taxes incorrectly booked ($40,000*20%) $8,000.00 Net change to retained earnings (A) $32,000.00

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