EXERCISE 22.

2 (5–7 minutes)

(a) Inventory ...............................................................

Retained Earnings ........................................

*(€19,000 + €21,000 + €25,000) – (€16,000 + €18,000

(b) Net Income (FIFO) 2019 €19,000

2020 21,000
2021 25,000

EXERCISE 22.6 (15–20 minutes)

(a) Depreciation to date on equipment

Sum-of-the-years’-digits depreciation
2019 (5/15 × €450,000) €150,000
2020 (4/15 × €450,000) 120,000
2021 (3/15 × €450,000) 90,000
€360,000*

Cost of equipment ..................................................

Depreciation to date ...............................................
Book value (December 31, 2021) ..............................

Book value – Residual value = Depreciable cost

€105,000** – €15,000 = €90,000

Depreciation for 2022: €90,000 ÷ 2 = €45,000

Depreciation Expense ............................................

Accumulated Depreciation—Equipment .......

(b) Depreciation to date on building

€780,000/30 years = €26,000 per year

€26,000 X 3 = €78,000^ depreciation to date
 Accumulated Depreciation—Equipment .......

(b) Depreciation to date on building

€780,000/30 years = €26,000 per year

€26,000 X 3 = €78,000^ depreciation to date

Cost of building ......................................................

Depreciation to date ...............................................
Book value (December 31, 2021) ..............................

Depreciation for 2022: €702,000^^ ÷ (40 – 3) = €18,9

Depreciation Expense ............................................ 1

Accumulated Depreciation—Buildings .........

EXERCISE 22.12 (10–15 minutes)

(a) Cost of plant assets €2,4

Less: Depreciation prior to 2022
2019 (€2,400,000 × 0.25*) €600,000
2020 (€1,800,000** × 0.25) 450,000
2021 (€1,350,000*** × 0.25) 337,500(b) 1,3
Book value at January 1, 2022 €1,0

*(1 ÷ 8) × 2 **(€2,400,000 - €600,000) ***[€2,400,000 – (€

Depreciation Expense ............................................

Accumulated Depreciation—Plant Assets ....
(€1,012,500 – €100,000) ÷ (8 – 3)

(b) Income before depreciation expense €3

Depreciation expense 1
Net income €1

EXERCISE 22.15 (15–20 minutes)

1. Accumulated Depreciation—Machinery ....... 3

Depreciation Expense ............................
Retained Earnings ..................................

2020–
Depreciation taken ......................................... $204
Depreciation (correct) .................................... (183
1. Accumulated Depreciation—Machinery ....... 3
Depreciation Expense ............................
Retained Earnings ..................................

2020–
Depreciation taken ......................................... $204
Depreciation (correct) .................................... (183
* $ 20
*$510,000 × 1/5 = $102,000** × 2

2. Retained Earnings .......................................... 4

Salaries and Wages Expense (sales) ....

3. No entry is necessary.

4. Amortization Expense—Copyright ........................

Retained Earnings ..................................................
Copyright ($2,500 + $5,000) ............................
(c) (d)
$50,000 ÷ 20 $2,500 × 2
5. Loss on Write-down of Inventories
(or Cost of Goods Sold) ......................................
Retained Earnings ..........................................

PROBLEM 22.2

(a) 1. Bad debt expense for 2019 should not have

the bad debt experience rate is considered
handled prospectively.

2. A change from Average Cost to FIFO is con

which must be handled retrospectively.

3. (a) The inventory error in 2021 is a prior pe

financial statements should be restated.

(b) The lawsuit settlement is correctly treate

(b) BOTTICELLI SpA

Comparative Income State
For the Years 2019 through
 (b) The lawsuit settlement is correctly treate

(b) BOTTICELLI SpA

Comparative Income State
For the Years 2019 through

2019 2020
Net income (unadjusted) €140,000 €160,000
1. Bad debt expense
adjustment (10,000)
2. Inventory adjustment
(FIFO) 15,000 5,000
3. Inventory
overstatement
Net income (adjusted) €145,000 €165,000
 ............................ 11,000*
............................ 11,000

– (€16,000 + €18,000 + €20,000)

€19,000
21,000
25,000

ment

ciation
0,000
0,000
0,000
60,000*

.............................. €465,000
.............................. (360,000)*
1) ............................... €105,000**

Depreciable cost

÷ 2 = €45,000

.............................. 45,000
n—Equipment ....... 45,000

ng

er year
ation to date
n—Equipment ....... 45,000

ng

er year
ation to date

.............................. €780,000
.............................. (78,000)^
1) ............................... €702,000^^

0^^ ÷ (40 – 3) = €18,973^^^ (rounded)

.............................. 18,973^^^
n—Buildings ......... 18,973

€2,400,000
22
) €600,000
5) 450,000
25) 337,500(b) 1,387,500
€1,012,500

***[€2,400,000 – (€600,000 + €450,000)]

.............................. 182,500
n—Plant Assets .... 182,500
(8 – 3)

2022 2021
xpense €300,000 €370,000
182,500(a) 337,500(b)
€117,500 € 32,500

achinery ....... 30,600

...................... 10,200(a)
...................... 20,400(b)

2020–2021 2022
...................... $204,000* $102,000**
...................... (183,600) (91,800)
(b) (a)
 achinery ....... 30,600
...................... 10,200(a)
...................... 20,400(b)

2020–2021 2022
...................... $204,000* $102,000**
...................... (183,600) (91,800)
* $ 20,400(b) $ 10,200(a)
2

...................... 45,000
nse (sales) .... 45,000

ight ........................ 2,500(c)

.............................. 5,000(d)
0) ............................ 7,500
2
ries
.............................. 87,000
.............................. 87,000

PROBLEM 22.2

19 should not have been reduced by €10,000. A change in

rate is considered a change in estimate, which should be

Cost to FIFO is considered a change in accounting policy,

etrospectively.

in 2021 is a prior period adjustment and the 2021 and 2022

should be restated.

nt is correctly treated.

BOTTICELLI SpA
arative Income Statements
e Years 2019 through 2022
nt is correctly treated.

BOTTICELLI SpA
arative Income Statements
e Years 2019 through 2022

2019 2020 2021 2022

40,000 €160,000 €205,000 €276,000

10,000)

15,000 5,000 10,000 (16,000)

(14,000) 14,000
45,000 €165,000 €201,000 €274,000