shared via CourseHero com This study resource was This study source was downloaded by 100000827267100 from CourseHero com on 06 16 2021 01 37 27 GMT 05 00 https www coursehero com file 12286346 ACC301Comp The Ingalls Corporation is in the process of negotiating a loan for expansion purposes The booksand records have never been audited and the bank has requested that an audit be performed Ingalls has prepared the following comparative financial statements for the years endedDecember 31 2008 and 2007 During the course of the audit the following additional facts were determined 1 An analysis of collections and losses on accounts receivable during the past two yearsindicates a drop in anticipated losses because of bad debts After consultation with management shared via CourseHero com This study resource was This study source was downloaded by 100000827267100 from CourseHero com on 06 16 2021 01 37 27 GMT 05 00 https www coursehero com file 12286346 ACC301Comp it was agreed that the loss experience rate on sales should be reduced from the recorded 2 to1 beginning with the year ended December 31 2008 2 An analysis of the available for sale securities revealed that this portfolio consisted entirely ofshort term investments in marketable equity securities that were acquired in 2007 The totalmarket valuation for these investments as of the end of each year was as follows December 31 2007 81 000 December 31 2008 62 000 3 The merchandise inventory at December 31 2007 was overstated by 4 000 and themerchandise inventory at December 31 2008 was overstated by 6 100 4 On January 2 2007 equipment costing 12 000 estimated useful life of 10 years and residualvalue of 1 000 was incorrectly charged to Operating Expenses Ingalls records depreciation viathe straight line method In 2008 fully depreciated equipment with no residual value thatoriginally cost 17 500 was sold as scrap for 2 500 Noble credited the proceeds of 2 500 toProperty and Equipment 5 An analysis of 2007 operating expenses revealed that Ingalls charged to expense a three yearinsurance premium of 2 700 on January 15 2007 Required1 Prepare the journal entries to correct the books at December 31 2008 The books for 2008have not been closed Ignore income taxes 2 Prepare a schedule showing the computation of corrected net income for the years endedDecember 31 2008 and 2007 assuming that any adjustments are to be reported on comparativestatements for the two years The first items on your schedule should be the net income for eachyear Ignore income taxes Do not prepare financial statements SOLUTION 1 1 Allowance for Uncollectible Accounts 10 000Administrative Expenses 10 000To reflect reduction in loss experience rate 2 Unrealized Decline in Value of shared via CourseHero com This study resource was This study source was downloaded by 100000827267100 from CourseHero com on 06 16 2021 01 37 27 GMT 05 00 https www coursehero com file 12286346 ACC301Comp Securities Available for Sale 16 000 Allowance for Change in Valueof Investment 16 000To reduce securities availablefor sale to market valuation 3 Retained Earnings 4 000Cost of Sales 2 100Merchandise Inventory 6 100To adjust for overstatements inopening and closing inventories 4 Equipment 12 000Operating Expenses 1 100Retained Earnings 10 900Accumulated Depreciation Equipment 2 200To adjust for misposting of equipmentpurchase in 2007 5 Accumulated Depreciation Equipment 17 500Equipment 15 000Other Income 2 500To adjust for misposting of equipment sale 6 Prepaid Expenses 900Operating Expenses 900 Retained Earnings 1 800To adjust for nonrecognition ofprepaid expense in 2007 7 Common Stock 60 000 shared via CourseHero com This study resource was This study source was downloaded by 100000827267100 from CourseHero com on 06 16 2021 01 37 27 GMT 05 00 https www coursehero com file 12286346 ACC301Comp Powered by TCPDF www tcpdf org Capital in Excess of Par 60 000To adjust for capital contributed inexcess of par value 2 INGALLS CORPORATIONComputation of Corrected Net IncomeFor Years Ended December 31 2008 and 2007 2008 2007Reported income 220 000 195 000Change in accounts receivable lossexperience rate from 2 to 1 10 000 Ending merchandise inventories overstated December 31 2007 4 000 4 000 December 31 2008 6 100 Misposting of equipment purchase Decrease in operating expenses 2007 10 900Increase in operating expenses 2008 1 100 Misposting of proceeds of equipment sold 2 500Recognition of prepaid insurance 900 1 800Corrected net income 228 400 203 700