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Beginning Ending Total
Tax Balance Balance Adjustments Balance Accounts Receivable $195,000
(a) $120,000 ($120,000) (b) $ 0 Unearned Deposits (105,000) (55,000) 55,000 © 0 (Untitled Account) -
- (300,000) (d) (300,000) Provision for Tax - - (250,000) (e) (250,000) Sales (6,000,000) (195,000) (a) 120,000
(b) (55,000)
© 300,000 (d) 250,000
(e) (5,580,000) The credit balance in the untitled account (d) and the part of the provision shown (e), appeared on the balance sheet as part of other long term obligations. The beginning amount in the unearned deposits account, if recognized in the prior year for tax purposes, should have debited the sales account but did not. The result of the unusual entries made was to understate income by as much as $550,000 for the year in question. There were no such debits to sales in the subsequent year, though the unexplained long-term liability remained on the books. Both the untitled account and the provision appeared in the same location on the subsequent trial balance, but closed to the retained earnings account. 5-18 Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Glossary |