APPLYING QUALITY STANDARDS 1 a. The write-down or write -off of receivables. 2 Income Statement a. Purchase Discounts b.

Gain on eary retirement of debt c. Interest Revenue d. Loss on Sale of Equipment e. Casualty Loss from Hurricane f. Sales commissions g. Loss on Disposal of Segment h. Income Tax Expense i. Gain on Sale of land j. Sales Discount k. Loss from longtern investments written off as worthless l. Depletion expense m. Cumulative effect of change in depreciation method n. Vacation pay of office employees o. Ending Inventory

Ordinay Item, it is considred as part of the business operations and is likely to occur in a business situation. Computation of Cost of Sales/ COGS Other Revenues/Expenses Other Revenues/Expenses Other Revenues/Expenses Extraordinary Items Selling Expenses Other Revenues/Expenses Provision for Income tax Other Revenues/Expenses Computation of Net Sales Other Revenues/Expenses General Expenses After Extraordinary items (+/-) Administrative Expenses Computation of Cost of Goods Sold/Sales

siness situation.

CARIBOU INC Income Statement December XXXX Sales Cost of Goods Sold Inventory, beg. Purchases 1,600,000.00 136,000.00 919,200.00 ### 95,200.00

Inventory, end Gross Profit Less: Selling Expenses Doubtful Accounts General Expenses INCOME BEFORE TAX INCOME TAX(30%) NET INCOME AFTER TAX EXTRAORDINARY GAIN(net of tax) NET INCOME AFTER EXTRAORDINARY

960,000.00 640,000.00 208,000.00 32,000.00 240,000.00 160,000.00 48,000.00 112,000.00 21,000.00 ITEMS 133,000.00

Sierra Corporation Curent Liabilities 31-Dec-09 Current Liabilities Accounts Payable 65,000 Notes Payable - Trade 12,000 Notes Payable - Bank 30,000 Wges and Salaries Payable 1,500 Interest payable 14,300 Mortgage Note Payable - 10% 60,000 Mortgage Note Payable - 12% 4,000 Interest Mortgage Note Payable - 12%18,000 Bonds Payable ### ### Non Current Liabilities Notes Payable - Bank (negotiated) Mortgage Note Payable - 12% 50,000 ### (150,000-4,000) ### ###

Total Liabilities

Appalachian Freight Company Balance Sheet 31-Dec-09 Assets Cash Accounts receivable 112,550.00 ADA (4,800.00) Inventories 175,250.00 Advances to Officers5,900.00 Prepaid Insurance 8,800.00 Land, buildings and 471,800.00 ACCDEP (95,000.00) 45,050.00 107,750.00 175,250.00 5,900.00 8,800.00 376,800.00 Capital Stock- Common Stocks 90,000.00 Capital Stock- Preferred Stocks 125,000.00 Additional Paid in Capital 68,600.00 Retained Earnings 212,150.00 Total Liabilities and Owner's Equity Liabilities and Owner's Equity Accounts Payable Salaries Payable Income Tax Payable Loan Payable - Current Loan Payable - NonCurrent Deferred Tax Liability 75,250.00 9,500.00 18,250.00 25,000.00 51,250.00 44,550.00

Total Assets

719,550.00

Correction Entries: Retained Earnings 4,800.00 Allowance for Doubtful Accounts 4,800.00 To record estimated allowance for Bad Debts

Computation: Preferred Common

125,000.00 90,000.00 215,000.00 283,600.00 215,000.00 68,600.00

APIC

Retained Earnings 45,000.00 Inventories 45,000.00 To record advertising expense to prior year income Paid in Capital 377,100.00 Inventory 16,250.00 Less APIC 68,600.00 Retained Earnings 16,250.00 Retained Earnings 308,500.00 To record additional inventory and to correct overstated COGS Retained Earnings 308,500.00 Advances to Officers5,900.00 Bad Debts Expense (4,800.00) Misc Liabilities 5,900.00 Advertising Expense (45,000.00) To record receivables from officers Ending Inventory 16,250.00 Taxes Expense (62,800.00) Misc Liabilities 9,500.00 Adjusted Retained Earnings 212,150.00 Salaries Payable 9,500.00 To reclass to correct account

Acc Dep.

85,000.00

Equipment To record retirement of Equipment

85,000.00

Retained Earnings 62,800.00 Income Tax Payable 18,250.00 Deferred Income Tax Liability 44,550.00 To record tax expense and liabilities

ner's Equity

223,800.00

495,750.00 719,550.00

Hadley Company Income Statement 31-Dec-09 Pre-Audited Adjustments Corrected Sales COGS 185,000 (94,000) (18,000) 23,500 (7,500) (4,500) 6,000 (18,000) (1,525)

### ### ### ### ### ### ### ###

Gross margin 91,000 Rent Expense (18,000) Advertising Expense (6,000) Warranty Expense (8,000) Other Expense (20,000) Net Income 39,000

Correction Entries: 1 Sales 18,000 Unearned Revenue 2 COGS 7,500

18,000

Cash Sales Inventory 3 Prepaid Rent Rent Expense

23,500 23,500 7,500 6,000 6,000

4 Advertising Expense 18,000 Prepaid Advertising

18,000

5 Increase in COGS

4,500

6 Warranty Expense 9,525 Warranty Liability (190,500*.05) Warranty Liability 8,000 Cash

9,525

8,000

Corrected

Revenue and Expense Recognition

Revenues should be recognized when already earned or services/goods has been rendered/delivered. In this case, we have an advance payment thus we still need to ship goods first before we record sale

Revenues should be recognized when already earned or services/goods has been rendered/delivered. In the transaction, we have delivered our goods therefore we should recognized sales. On the otherhand, a provision should be made to those under in money-back guarantee

Expense should be recognized at the same year its revenue has been earned. Same in the transaction

Expense should be recognized at the same year the asset has been used or consumed. A cost should be recognized as an expense for the current year, even it may be assumed that can benefit the future, but cannot be directly associated to the future year

The concept of conservatism should be recognized. This means that we should recognize increases in expenses as soon as they are reasonably possible The concept of consistency should be taken into consideration. All changes in the accounting principles are to be noted in the Financial Statements and have reasonable basis to reflect in the company's RE. In this case, we still have to setup a Warranty expense based on the 5% of Sales

een rendered/delivered. t before we record sales.

een rendered/delivered.

Same in the transaction.