Reference no: EM132619996
You are completing the audit of Harbour Bicycles Ltd. (HBL) for the year ended December 31, 2019. Your substantive analytical procedures identify an anomaly in the capital asset accounts and, upon closer examination, you discover that a capital asset, acquired at the beginning of 2017, at a cost of $28,000, was capitalized in that year and has been depreciated over 6 years on a straight-line basis with no residual value consistent with the company's general capitalization and depreciation policy. This specialized asset was acquired solely for a special project started and completed in 2017 and the asset had no use after this project was completed and accordingly should have been entirely expensed in 2017 against the special project revenue.
Also, during the year it was identified through computer pricing errors that the 2018 ending inventory was overstated by $6,533. The 2019 ending inventory is correct and the draft 2019 net income after tax has been adjusted for this overstatement.
The company's tax rate for all periods is 25% and the company's tax filings were properly handled. Selected draft results for the current year, excluding any impact of the identified error and published results for 2018 are as follows:
2019 Draft 2018
Retained earnings, beginning $280,000 $180,000
Net income, after tax $180,000 $160,000
Dividends declared $80,000 $60,000
Dividends Paid $90,000 $55,000
Required: (Round all calculations to the nearest dollar.)
Question 1: Prepare, with supporting calculations, all related entries required in 2019 to finalize the year end. If no entry is required identify no entry is required.
Question 2: Make a comparative statement of Retained Earnings, in good form (heading captions are not required), for the years ended December 31, 2019 and comparative 2018. Show separately any supporting computations where required.