Reference no: EM13536324
The reported net income amounts for Gulf Coast Magazine, Inc., for calendar years 2010 and 2011 were USD 200,000 and USD 222,000, respectively. No annual adjusting entries were made at either year-end for any of the following transactions:
A fire insurance policy to cover a three-year period from the date of payment was purchased on 2010 March 1 for USD 3,600. The Prepaid Insurance account was debited at the date of purchase.
Subscriptions for magazines in the amount of USD 72,000 to cover an 18-month period from 2010 May 1, were received on 2010 April 15. The Unearned Subscription Fees account was credited when the payments were received.
A building costing USD 180,000 and having an estimated useful life of 50 years and a residual value of USD 30,000 was purchased and put into service on 2010 January 1.
On 2011 January 12, salaries of USD 9,600 were paid to employees. The account debited was Salaries Expense. One-third of the amount paid was earned by employees in December of 2010.
Calculate the correct net income for 2010 and 2011. In your answer, start with the reported net income. Then show the effects of each correction (adjustment), using a plus or a minus to indicate whether reported income should be increased or decreased as a result of the correction. When the corrections are added to or deducted from the reported net income amounts, the result should be the correct net income amounts. The answer format should appear as follows:
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Explanation of corrections
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2010
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2011
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Reported net income
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$200,000
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$222,000
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To correct error in accounting for:
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Fire insurance policy premium:
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Correct expense in 2010
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-1,000
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Correct expense in 2011
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-1,200
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