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Chapter 13: Q15SE_1 (page 710)

Analyzing the effect of prior-period adjustments

Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of \(70,000 for utilities expense. The correct amount of the utilities expense was \)35,000.

Requirements

1. Determine the effect of the error on the accounting equation in 2018.

Short Answer

Expert verified

In 2018 the error overstated utilities expense by $35,000 due to which Owner鈥檚 equity is understated by $35,000.

Step by step solution

01

Basic Introduction

The accounting equation expresses that a corporation's total assets are equal to the sum of liabilities and shareholders' equity of the corporation.

02

The effect of the error on the accounting equation

Utilities expense is overstated by $35,000

Net income is understated by $35,000

Owner鈥檚 equity is understated by $35,000

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Most popular questions from this chapter

Computing earnings per share and price/earnings ratio

Rocket Corp. earned net income of \(153,040 and paid the minimum dividend to preferred stockholders for 2018. Assume that there are no changes in common shares outstanding during 2018. Rocket鈥檚 books include the following figures:

Preferred Stock鈥�6%, \)60 par value; 2,000 shares authorized, 1,000

shares issued and outstanding \( 60,000

Common Stock鈥擻)5 par value; 80,000 shares authorized, 48,000 shares

issued, 46,700 shares outstanding 240,000

Paid-In Capital in Excess of Par鈥擟ommon 470,000

Treasury Stock鈥擟ommon; 1,300 shares at cost (26,000)

Requirements

2. Assume Rocket鈥檚 market price of a share of common stock is $12 per share. Compute Rocket鈥檚 price/earnings ratio.

Journalizing issuance of stock and preparing the stockholders鈥� equity section of the balance sheet

The charter of Evergreen Corporation authorizes the issuance of 900 shares of preferred stock and 1,400 shares of common stock. During a two-month period, Evergreen completed these stock-issuance transactions:

Mar. 23 Issued 230 shares of \(3 par value common stock for cash of \)15 per share.

Apr. 12 Received inventory with a market value of \(27,000 and equipment with a market value of \)19,000 for 320 shares of the \(3 par value common stock.

17 Issued 900 shares of 5%, \)20 par value preferred stock for \(20 per share.

Requirements

2. Prepare the stockholders鈥� equity section of the Evergreen balance sheet as of April 30, 2018, for the transactions given in this exercise. Retained Earnings has a balance of \)73,000 at April 30, 2018

What are the basic rights of stockholders?

Computing earnings per share, price/earnings ratio, and rate of return on common stockholders鈥� equity

Bianchi Company reported these figures for 2018 and 2017:

2018 2017

Income Statement鈥攑artial:

Net Income \( 34,380 \) 18,000

Dec. 31, 2018 Dec. 31, 2017

Balance Sheet鈥攑artial:

Total Assets \( 285,000 \) 280,000

Paid-In Capital:

Preferred Stock鈥�11%, \(9 Par Value; 60,000 shares

authorized, 12,000 shares issued and outstanding

\) 108,000 \( 108,000

Common Stock鈥擻)2 Par Value; 60,000 shares

authorized, 50,000 shares issued and outstanding

100,000 100,000

Paid-In Capital in Excess of Par鈥擟ommon 14,000 14,000

Retained Earnings 60,500 38,000

Total Stockholders鈥� Equity \( 282,500 \) 260,000

Requirements

2. Compute Bianchi Company鈥檚 price/earnings ratio for 2018. Assume the company鈥檚 market price per share of common stock is $9. Round to two decimals.

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Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.

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