The following are independent errors made by a company that uses the periodic inventory system:

a$.$ Goods in transit, purchased on credit and shipped FOB destination, $$10,000,$ were included in purchases but not in the physical count of ending inventory. Assume the error was discovered prior to any payment for the purchase.

b$.$ Purchase of a machine for $$2,000$ was expensed. The machine has a $4-$year life, no residual value, and straight$-$line depreciation is used.

c$.$ Wages payable of $$2,000$ were not accrued. Assume the wages were unpaid at the time the error was discovered.

d$.$ Payment of next year$$s rent, $$4,000,$ was recorded as rent expense.

e$.$ Allowance for doubtful accounts of $$5,000$ was not recorded. The company normally uses the aging method. The error was discovered prior to the accrual for bad debt in the following year.

f$.$ Equipment with a book value of $$70,000$ and a fair value of $$100,000$ was sold at the beginning of the year. A $2-$year, non$-$interest$-$bearing note with a face value of $$129,960$ was received and recorded at its face value, and a gain of $$59,960$ was recognized. No interest revenue was recorded. A fair rate of interest is $14\%,$ resulting in a present value of the note of $$100,000.$

Required:

Prepare the correcting journal entries if the company discovers each error $2$ years after it is made and it has closed the books for the second year. Ignore income taxes.

Prepare the correcting journal entries if the company discovers each error $2$ years after it is made and it has closed the books for the second year on December $31.$ Ignore income taxes.

General Journal Instructions

Answer rating: 100% (QA)

Correcting Journal Entries 2 Years After Closing Books Scenario 1 Error discovered 2 years after clo... View the full answer