In: Accounting
In 2017, the new CEO of Watsontown Electric Supply became concerned about the company’s apparently deteriorating financial position. Wishing to make certain that the grim monthly reports he was receiving from the company’s bookkeeper were accurate, the CEO engaged a CPA firm to examine the company’s financial records. The CPA firm discovered the following facts during the course of the engagement, which was completed prior to any adjusting or closing entries being prepared for 2017.
DR Vehicle Expense | $ | 18,000 | |||||
CR Cash | $ | 18,000 | |||||
Required:
Prepare any journal entry necessary to correct each error as well as any year-end adjusting entry for 2017 related to the described situation. Ignore income tax effects. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)
Date | General Ledger Account | Debit | Credit | Working |
Intangible Assets A/c---Dr | 2,500 | 5000/4*2 | ||
To office expenses | 2,500 | |||
Truck Asset A/c---Dr | 18,000 | |||
To Vehicle Expenses A/c | 18,000 | |||
Depreciation Expenses A/c---Dr | 2,500 | (18,000-3,000)*.5/3 | ||
To Truck Asset A/c | 2,500 | |||
Rent Expenses A/c---Dr | 18,000 | |||
To Buildings A/c | 18,000 | |||
No entry for bad-debts | Since the revenue of 2017 was misstated leading to higher PL and in the CY, bad debt expenses has led to reduced PL. Assuming amount is not material, no entry shall be required else PY financials to be restated | |||
Prepaid insurance A/c---Dr | 20,000 | 30,000/3*2 | ||
To Insurance expenses A/c | 20,000 | |||
No entry |
Since the interest for 12 months has
been paid and assuming PY interest was not accrued, charging off
the current year PL is ideal. However,3 months accrual should be
done for 2017 8,000/12*3 |
|||
Interest Expenses A/c---Dr | 2,000 | |||
To Accrued interest | 2,000 |