You have been assigned to examine the financial statements of Cheyenne Company f

Question

You have been assigned to examine the financial statements of Cheyenne Company for the year ended December 31, 2017. You discover the following situations.

Cost

Fair Value

Assume the trial balance has been prepared but the books have not been closed for 2017. Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations.)

1. Depreciation of $3,000 for 2017 on delivery vehicles was not recorded. 2. The physical inventory count on December 31, 2016, improperly excluded merchandise costing $19,300 that had been temporarily stored in a public warehouse. Cheyenne uses a periodic inventory system. 3. A collection of $5,400 on account from a customer received on December 31, 2017, was not recorded until January 2, 2018. 4. In 2017, the company sold for $3,600 fully depreciated equipment that originally cost $26,900. The company credited the proceeds from the sale to the Equipment account. 5. During November 2017, a competitor company filed a patent-infringement suit against Cheyenne claiming damages of $226,500. The company’s legal counsel has indicated that an unfavorable verdict is probable and a reasonable estimate of the court’s award to the competitor is $127,500. The company has not reflected or disclosed this situation in the financial statements. 6. Cheyenne has a portfolio of trading investments. No entry has been made to adjust to market. Information on cost and fair value is as follows.

Explanation / Answer

Dear

Undermentioned are the entries required to be passed for the rectification of the above mentioned trasaction errors :

1. Depreciation A/c Dr $ 3000, To Accumulated Depreciation on Vehicles $ 3000

2. Inventory A/c Dr $ 19300, To P&L A/c $ 19300 (Since non inclusion of inventory would have under stated the profits of the company & hence any increase in the inventory would increase the profits of the entity.

3. Cash A/c Dr $ 5400 to Trade Receivables $ 5400

4. Accumulated Depreciaiton A/c Dr. $26900, Customer A/c Dr. $ 3600, To Equipments A/c $ 26900, to Profit on sale of Equipments $ 3600

5. Exceptional Exp A/c Dr $ 127500, To Provision for Expenses $ 127500 (Being provision for patent infrigment, exceptional nature expense)

6. MTM Loss on Investments Dr $ 1800, To Provision for Loss on Investments Cr $ 1800

7. Provision for Salary A/c Dr 4000 to Salary Exp Cr $ 4000 (Being higher provision for Salary payable made in the financials)

8. Plant & Machinery A/c Dr. 41600 To Repair & Maintainence Exp Cr. $ 41600. Depreciation A/c Dr. $ 5200 to Accumulated Depreciation on P&M $ 5200.

I hope the above answers will help you out.

Thanks

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.