Question

You have been assigned to examine the financial statements of ABC corp. for the year ended December 31, 2019, as prepared following IFRS. You discover the following situations:

1. Physical inventory count on Dec31, 2018, improperly excluded merchandise costing $13,000 that had been temporarily stored in a public warehouse. ABC corp uses periodic inventory system
2. Physical inventory count on Dec31,2019, improperly included merchandise with a cost of $26,000 that had been recorded as a sale on Dec27, 2019, and was being held for the customer to pick up on Jan 4,2020
3. Depreciation of $6,700 for 2018 on delivery vehicles was not recorded
4. A collection of $4,600 on account from customer received on Dec 31,2019, was not recorded until Jan 2, 2020
5. A large piece of equipment was purchased on Jan 1, 2019 for $20,500 and was charged in error to repairs expense. The equipment estimated useful life 8 years and no residual value. ABC corp uses straight-line depreciation method for this type of equipment.
6. On Dec 31, 2018 accrued wages of $1,500 were not recognized and not recorded
7. A 3 years insurance premium paid on July 1,2018 for policy expires on June 30,2021, amount of $12,000 was charged to insurance expense
8. The Accountant recorded a purchase of supplies for $9,000 in 2019 that applied to 2020.
9. At the beginning of 2017, the company purchased equipment for $225,000(residual value $22,500) and had useful life 6 years. The accountant used straight line amortization, but failed to deduct the residual value in calculation the depreciation base for the past and current years.
10. A cheque for $44,000 was paid in January 1, 2019 to cover the rent for 2019 and 2020; the entire amount was debited to rental expense.

Instructions:

Prepare the required Journal entries (if any) to correct ABC corp's accounts, assuming each transaction is independent and assume 2019 books are not closed.

Answer 1

1	Dr	Inventory A/c		$13,000.00
	Cr	COGS A/c			$13,000.00
		(Adjustment of Inventory and for overstated COGS)
2	Dr	COGS A/c		$26,000.00
	Cr	Inventory A/c			$26,000.00
		(Sold Inventory adjusted to COGS)
3	Dr	Retained Earnings A/c		$6,700.00
	Cr	Accumulated Depreciation A/c			$6,700.00
		(Adjustment of Depreciation)
4	Dr	Cash A/c		$4,600.00
	Cr	Customer A/c			$4,600.00
5	Dr	Equipment A/c		$20,500.00
	Dr	Depreciation Exp A/c		$2,562.50
	Cr	Acc. Depreciation A/c			$2,562.50
	Cr	Repairs Expense A/c			$20,500.00
6	Dr	Retained Earnings A/c		$1,500.00
	Cr	Accrued Wages A/c			$1,500.00
7		*No entry needed. Credit should be Prepaid Insurance
8	Dr	Accounts Payable A/c		$9,000.00
	Cr	Inventory A/c			$9,000.00
		(Reversal of entry) *If Purchase happened at 2019, entry should not be reversed even if the inventory is used on 2020
9	Dr	Acc. Depreciation A/c		$7,500.00
	Dr	Acc. Depreciation A/c		$3,750.00
	Cr	Depreciation Exp A/c		$3,750.00
	Cr	Retained Earnings A/c		$7,500.00
		(Reversal of overstated depreciation)
10	Dr	Prepaid Rent A/c		$22,000.00
	Cr	Rental Expense A/c			$22,000.00
		(Prepaid Rent debited and reduced the Expense A/c)

On 7th question, my understanding is that $12,000 is the part of expense for the current year and the total premium will be $36,000. In the first year(2018) $6000 is expensed for the year and $30,000 debited to Prepaid Insurance A/c.