Question: Assignment: Iron Curtain versus Rollover evaluations of misstatement materiality and correcting entries under SAB 108
For each independent scenario below, prepare the 2011 correcting entries that would be required under (A) the iron curtain approach, (B) the rollover approach and (C) SAB 108. Assume that tolerable misstatement for the 2011 financial statements is set at $800 and assume that the identified prior period misstatements were considered immaterial and were therefore not corrected.
1. In 2010, the company recorded a $1000 sale that actually occurred in 2011.
2. In 2010, the company recorded a $500 sale that actually occurred in 2011. In 2011, the company failed to record a $400 sale.
3. In 2010, the company recorded a $600 sale that actually occurred in 2011. In 2011, the company similarly recorded a $500 sale that actually occurred in 2012.
4. At the end of 2010, the company had under-accrued the warranty liability by $700. In 2011, $300 of related warranty claims were paid. At the end of 2011, the underaccrual had grown to $1600.
5. At the end of 2010, the company had under-accrued the warranty liability by $700. In 2011, $300 of related warranty claims were paid. At the end of 2011, the underaccrual had grown to $1200.
6. The company did not accrued salary expense of $500 at the end of 2010. The company similarly did not accrue salaries of $1500 at the end of 2011.
7. The company over-estimated bad debt expense by $400 in 2009, by $200 in 2010 and $500 in 2011.
8. The company failed to accrue utility expense of $1200 in 2011.