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Bulletin HASKINS & SELLS 63 Problems THERE are presented herewith two problems taken from the 1918 examinations of the State Board of Accountancy of Wisconsin. The first is somewhat easier than the second, and is designed to interest some of the less experienced men on the staff. The second problem will perhaps appeal to some of those who are more advanced. PROBLEM NO. 1 In checking the inventory sheets and ledger accounts dealing with materials you found that the following error had occurred : Dec. 31, 1916. An item of $500 was added to inventory sheet after totals had been obtained and was not entered in the ledger account. Dec. 31, 1916. An error of $1,000 in adding the inventory extensions resulting in an overstatement of the inventory by this amount. Dec. 31, 1917. An error is made in valuing one lot of material, the result of which is an overstatement of the inventory value to the amount of $2,000. Dec. 31, 1917. An error of $10,000 in footing the inventory extensions, resulting in an understatement of the ledger inventory value by this amount. Dec. 31, 1917. An invoice of $4,000 for materials just received included in Accounts Payable but the amount was not included in the inventory. You are asked to draft the necessary journal entry or entries to correct these errors, and to show the net effect of the errors upon the profits of each of the two years. Assume that the profits shown on the ledger for 1916 were $20,000 and for 1917, $30,000. PROBLEM NO. 2 The National Rubber Company of Chicago is to have an audit of their accounts, and your firm is awarded the work. During the time that the Chicago accounts are being prepared you are assigned to take up the accounts at the Oshkosh Plant and the accounts of its selling company located at the same place. When the assets and liabilities of both companies at Oshkosh were taken over on December 31, 1916, no reserves in respect of discounts and freight allowances to trade were on record. The selling company known in the trade as The Michigan Rubber Company under instructions from Chicago was to make a net profit equal to one-half of 1 per cent of its sales as invoiced. The values established in the inter-company sales and purchases are based on the sales of the selling company less its expenses and a net profit of one-half of 1 per cent of sales invoiced. The entire output of the National Rubber Company is sold by the Michigan Rubber Company. Your analysis of the accounts showed that the Michigan Rubber Company had accounts receivable at the close of 1916 in the amount of $560,000, the discount to the trade averaging 4.6 per cent which was also the prevailing rate at the close of 1917. There was included in the freight allowances of 1917 an amount of $8,400 on sales effected in 1916 and the probable credits to present outstandings in this respect were estimated at $11,500. You are advised by officials that this should not disturb the profits of the Michigan Rubber Company ($3,750.00) although the reserves created are to be on the balance sheet of that company. With the following statements prepare a combined Balance Sheet that can be further combined with the accounts made up in Chicago, and at the same time prepare a combined Profit & Loss account that will substantiate the profit for each company shown in the combined Balance Sheet remembering that the surplus of the subsidiary company is to remain at $3,- 750.00, regardless of whatever adjustments you make.
Object Description
Title |
Problem |
Author |
Anonymous |
Subject |
Accounting -- Examinations, questions, etc. -- Wisconsin |
Geographic Location |
Wisconsin |
Citation |
Haskins & Sells Bulletin, Vol. 02, no. 08 (1919 August 15), p. 63-64 |
Date-Issued | 1919 |
Source | Originally published by: Haskins & Sells |
Type | Text |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Libraries. Accounting Collection |
Date-Digitally Created | 2009 |
Identifier | HS Bulletin 2-p63 |