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The reported net incomes for the first 2 years of Sandhill Co. were as follows: 2017,...

The reported net incomes for the first 2 years of Sandhill Co. were as follows: 2017, $169,000; 2018, $225,000. Early in 2019, the following errors were discovered. 1. Depreciation of equipment for 2017 was overstated by $7,900. 2. Depreciation of equipment for 2018 was understated by $15,400. 3. December 31, 2017 ending inventory was overstated by $20,300. 4. December 31, 2018 inventory was overstated by $28,300.

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed.

Solutions

Expert Solution

Answer - Entry to be parked -

Account Debit $ Credit $
Prior year error adjustment entry Retained earnings          56,100
Equipment            7,500
Inventory          48,600

Workings / Explaination -

Account Debit Credit
1. Depreciation of equipment for 2017 was overstated by $7,900. Equipment            7,900
Retained earnings            7,900
2. Depreciation of equipment for 2018 was understated by $15,400 Retained earnings          15,400
Equipment          15,400
3. December 31, 2017 ending inventory was overstated by $20,300. Retained earnings          20,300
Inventory          20,300
4. December 31, 2018 inventory was overstated by $28,300. Retained earnings          28,300
Inventory          28,300

ekkarill92 answered 2 years ago
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