Advanced Financial Reporting Project on ERRORS - DUE Saturday October 31, 2020 @8pm ET

Project #2

You have been assigned to examine the financial statements of Bridgewater, Inc. for the year ended December 31, 2020. You discover the following situations in February 2021.

1. The physical inventory count has been incorrectly counted resulting in the following errors.

December 2018 Overstated $14,000

December 2019 Understated 15,600

December 2020 Understated 8,500

2. Jackson, Inc. purchased $24,500 of supplies during 2020 recording a debit to Supplies expense and credit to Cash. The Supplies account had a balance of $3,000 on January 1, 2020. A count revealed there were $3,600 on hand at December 31, 2020. No entries have been made to Supplies all year.

3. In 2020, the company sold for $12,300 equipment that had a book value of $8,800 and originally cost $70,000. The company credited the proceeds from the sale to the Equipment account. The company made the following entry:

Cash 12,300

Equipment 12,300

4. Bridgewater, Inc. did not accrued salaries payable in 2018 or 2019, as follows. Salaries were expensed when paid in 2018 and 2019. The company has properly accrued salaries for 2020.

December 2018 $7,400

December 2019 $7,100

December 2020 $0

5. At December 31, 2019 Jackson, Inc. decided to change the depreciation method on its machinery from double-declining-balance to straight-line. The Machinery had an original cost of $50,000 when purchased on January 2, 2019. It has a 5-year useful life and no salvage value. Depreciation expense recorded prior to 2020 under the double-declining-balance method was $20,000. Bridgewater, Inc. has already recorded 2020 depreciation expense of $12,000 using the double-declining balance.

6. During May 2020, a competitor company filed a patent-infringement suit against Bridgewater, Inc. claiming damages of $150,000. On December 1, 2020 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 $95,000. No entry has been recorded.

7. May 1, 2019 Bridgewater, Inc. paid $60,000 for a two-year lease of office space that expires on April 30, 2021. The company debited Prepaid Rent on May 1, 2019 and has not made any other entries regarding the lease.

8. Bridgewater, Inc. has not recorded any depreciation on their computer equipment for 2018-2020. It was acquired January 5, 2018 for $130,000, has a salvage value of $10,000 and useful life of 4 years.

9. The December utilities bills have been expensed in January, the following month, when paid. Utilities payable on December 31 of each year were as follows.

2018 $750

2019 800

2020 880

10. The company has estimated warranty expense to be 2% in the past and made an entry for $200,000 in 2020. However, the company decided that it should only be 1.8% this year which amounts to $180,000.

11. Reported Net Income is:

Instructions

(a) Assume the trial balance has been prepared but the books HAVE NOT been closed for 2020. Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations).

(b) Assume the trial balance has been prepared but the books HAVE been closed for 2020. Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations).

(c) Complete the excel schedule correcting net income for 2018, 2019 and 2020 assuming the books HAVE NOT been closed for 2020.