Wrapping up! - Applying IAS 8

1. On December 31, 2015, Carmel Corp., a calendar yearend company discovered some errors on its present and the past financial statements. Data for errors are summarized as follows:20142015

1. Failed to accrue interest receivable$ 1,000$ 2,250

2. Failed to record repairs expense8,00010,000

3. Failed to record prepaid insurance450250

4. Understated depreciation expense3,000

On January 1, 2013, Carmel Corp. purchased an office equipment for cash worth $10,000, with a residual value of $2,000 and useful life of 5 years. Carmels accountant recorded the transaction as:

Maintenance expense$10,000Cash in bank$10,000To record the acquisition of an office equipment for cash.

Carmel capitalized a research and development expense, using the Patent account that should have been expensed as incurred. It amounted to $6,000 and amortized for 5 years starting July 1, 2013. Net income for 2014 - $33,200 2015 - $36,320 Retained Earnings as of January 1, 2016 is $66,600

Required:1. How much is the correct profit of Carmel Corp. for 2015?2. What is the correct amount of retained earnings as of January 1, 2016?3. Prepare the necessary journal entries for 2015, assuming the books are not yet closed.Ignore income tax on all scenarios.

2. Rosemary Co. underwent a review of its financial records at December 31, 2015 (end of annual accounting period). During the review, the following situations were found that need immediate action.a. On December 26, 2015, an equipment that cost $20,000 was debited in full to 2015 operating expenses. The equipment has a 5 year estimated life and no residual value. The entity uses straight-line method of depreciation.b. Late in 2015, the company constructed its own warehouse (self-constructed asset). Rosemary incurred $90,000 for materials, labor and overhead. However, during the course of construction, the entity knew that the cost of construction from outside party with a similar design costs $100,000. Therefore, Rosemary made the following entry in the accounts.Warehouse$100,000 Cash $90,000 Profit from self-construction 10,000

c. Prior to recording the 2015 depreciation expense, the management decided that a large machine that originally cost $128,000 should have been depreciated over a useful life of 14 years instead of 20 years. The machine was acquired January 5, 2010. Assume the residual value of $8,000 did not change.

d. During December 2015, the company disposed an old machine for $6,000 cash. Annual depreciation was $2,000. At the beginning of 2015, the accounts reflected the following:Machine (cost)$18,000Accumulated depreciation 13,000

No depreciation has been recorded in 2015. At the date of disposal, the following entry were made:Cash$6,000Machine $6,000

Net income for 2015 is $78,250.

Required:1. Prepare the necessary correcting entries assuming that the books are still open at December 31, 20152. What is the correct profit for 2015?

3. Upon inspection of the records of Loot Co. the following facts were discovered for the fiscal year ended, June 30, 2015. a. A fire insurance premium of $4,000 was paid and charged as expense in 2015. The fire insurance covers one year from January 3, 2015.

b. Inventory on July 1, 2014 was understated by $8,000. Meanwhile inventory on June 30, 2015 was understated by $12,000.

c. Business taxes of $5,500 were paid on July 17, 2015 and charged as expense for the next fiscal year.

d. On June 30, 2015, a cash advance of $10,000 by a customer was received for goods to be delivered in July 2015. The $10,000 was credited to sales. The companys gross profit rate on sales is 33%.

e. The profit of Loot Co. for the fiscal year ended June 30, 2015 before any adjustments for the given information is $155,000.

Required:1. What is the correct profit of Loot Co. for the fiscal year ended June 30, 2015?2. Prepare the necessary correcting entries assuming that the books are still open at December 31, 2015