Question

Salem Company's Income Statement adjustments involve allocating expenses. Which of the following is not a correct adjustment?

A) Utilities and insurance expenses were divided: 70% for factory operations, the remaining 30% divided equally between selling and administrative expenses.
B) Sixty percent of the rent expense was assigned to factory operations, the rest split equally between selling and administrative expenses.
C) Depreciation of factory equipment was taken into account based on the double-declining balance method.
D) Inventory balances for January 1 and December 31, 2018, were properly evaluated and considered in the adjustments.

Answer 1

None of the listed adjustments for Salem Company's Income Statement (utilities and insurance expenses, rent expense, depreciation of factory equipment, and inventory balances) are inherently incorrect as they all follow standard accounting practices without additional context showing a discrepancy.

Step-by-step explanation:

The question involves identifying which expense allocation adjustment by Salem Company is not correct. The adjustments include allocating expenses for utilities, insurance, rent, depreciation, and inventory balances. To assess the adjustments:

A) The division of utilities and insurance expenses 70% for factory operations and the remaining 30% between selling and administrative expenses is a common practice for allocating mixed costs to different functions.B) Assigning sixty percent of the rent expense to factory operations fits within reasonable accounting practices as rent can be classified as a fixed cost, which does not change according to the level of production.C) Depreciation of factory equipment based on the double-declining balance method is a legitimate depreciation method, especially for assets that lose their value more quickly in the beginning years.D) Proper evaluation of inventory balances for the beginning and end of the year is crucial for accurately reflecting the cost of goods sold and inventory turnover in financial statements.Based on provided information, none of the adjustments A, B, C, and D seems inherently incorrect without additional context indicating a mismatch between the allocation and the actual usage of expenses. All listed adjustments are standard accounting practices for income statement preparation.