Reference no: EM132465787

On December 1st. 2017, when preparing for the 2017-year end statements, Billy Reid, the CFO of KC Plastics discovered three errors after an initial review it was agreed that there were only two (2) errors in the 2015 statements. The tax rate is 30%.

Error 1

• Inventory purchases of 1.8 million had inadvertently been charged to equipment, a capital asset account, and had been amortized by 8% for 2015 and 2016. The accounting amortization rate is the same rate for CCA for tax purposes. The ending and beginning inventories were stated correctly. The mistake caused cost of sales to be understated by 1.8 million and pretax earnings to be overstated by the same amount.

Error 2

• A customer had paid 3.8 million for a partial payment due for an ongoing contract with SF49's Inc. The contract revenue had already been recognized. However, the payment was accidentally credited to Sales instead of accounts receivable and was included in taxable income.

Question 1. Show the calculations for the earnings correction that KC Plastics Inc. must show in the 2017 financial statements.

Question 2. Where will the above corrections be disclosed?

Question 3. For each correction prepare a general journal entry.