Question

Conrad Playground Supply underwent a restructuring in 2021. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries are prepared.

1. Additional computers were acquired at the beginning of 2019 and added to the company’s office network. The $49,500 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method.
2. Two weeks prior to the audit, the company paid $21,500 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later.
3. On December 31, 2020, merchandise inventory was understated by $87,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system.
4. Two years earlier, the company recorded a 4% stock dividend (2,900 common shares, $1 par) as follows:

Retained earnings	2,900
Common stock		2,900

The shares had a market price at the time of $12 per share.

5. At the end of 2020, the company failed to accrue $122,000 of interest expense that accrued during the last four months of 2020 on bonds payable. The bonds, which were issued at face value, mature in 2025. The following entry was recorded on March 1, 2021, when the semiannual interest was paid, as well as on September 1 of each year:

Interest expense	183,000
Cash		183,000

6. A three-year liability insurance policy was purchased at the beginning of 2020 for $74,700. The full premium was debited to insurance expense at the time.

Required:
For each error, prepare any journal entry necessary to correct the error, as well as any year-end adjusting entry for 2021 related to the situation described. (Ignore income taxes.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

No.	Particulars	Debit	Credit
a-1.	Equipment	49,500
	Accumulated depreciation(49,500 *2/5)		19,800
	Retained earnings		29,700
a-2.	Depreciation expense(49,500/5)	9,900
	Accumulated depreciation		9,900
b-1.	Cash	21,500
	Office supplies		21,500
b2.	No Journal entry required
c-1.	Inventory	87,000
	Retained earnings		87,000
c-2.	No Journal entry required
d-1.	Retained earnings(2,900*(12 - 1))	31,900
	Paid in capital-Excess of par		31,900
d-2.	No journal entry required
e-1.	Retained earnings	122,000
	Interest expense		122,000
e-2	Interest expense	122,000
	Interest payable		122,000
f-1	Prepaid Insurance(74,700 - (74,700 / 3))	49,800
	Retained earnings		49,800
f-2.	Insurance expense(74,700 / 3)	24,900
	Prepaid insurance		24,900

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