Question

You have been assigned to examine the financial statements of Waterway Company for the year ended December 31, 2017. You discover the following situations.

1. Depreciation of $3,000 for 2017 on delivery vehicles was not recorded.

2. The physical inventory count on December 31, 2016, improperly excluded merchandise costing $17,900 that had been temporarily stored in a public warehouse. Waterway uses a periodic inventory system.

3. A collection of $5,400 on account from a customer received on December 31, 2017, was not recorded until January 2, 2018.

4. In 2017, the company sold for $3,300 fully depreciated equipment that originally cost $27,300. The company credited the proceeds from the sale to the Equipment account.

5. During November 2017, a competitor company filed a patent-infringement suit against Waterway claiming damages of $201,600. The company’s legal counsel has indicated that an unfavorable verdict is probable and a reasonable estimate of the court’s award to the competitor is $122,500. The company has not reflected or disclosed this situation in the financial statements.

6. Waterway has a portfolio of trading investments. No entry has been made to adjust to market. Information on cost and fair value is as follows. Cost Fair Value December 31, 2016 $102,900 $102,900 December 31, 2017 $90,800 $89,000

7. At December 31, 2017, an analysis of payroll information shows accrued salaries of $11,900. The Salaries and Wages Payable account had a balance of $15,800 at December 31, 2017, which was unchanged from its balance at December 31, 2016.

8. A large piece of equipment was purchased on January 3, 2017, for $36,200 and was charged to Maintenance and Repairs Expense. The equipment is estimated to have a service life of 8 years and no residual value. Waterway normally uses the straight-line depreciation method for this type of equipment.

9. A $12,000 insurance premium paid on July 1, 2016, for a policy that expires on June 30, 2019, was charged to insurance expense.

10. A trademark was acquired at the beginning of 2016 for $45,500. No amortization has been recorded since its acquisition. The maximum allowable amortization period is 10 years. Assume the trial balance has been prepared but the books have not been closed for 2017.

Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Answer 1

No.	Account Titles and Explanation	Debit	Credit
1	Depreciation (Expense)	3000
	Accumulated Depreciation		3000
	(Depreciation expense recorded)
2	Cost of Goods sold (COGS)	17900
	Retained Earnings		17900
	(Correction entry for inventory)
3	Cash	5400
	Accounts Receivable		5400
	(Collectuion of AR)
4	Accumulated Depreciation - Equipment	27300
	Equipment		24000
	Gain on Sale		3300
	(Record the sale of asset)
5	Litigation loss (Estimated)	122500
	Litigation liability (Estimated)		122500
	(Estimated amount of loss recorded)
6	Unrealized gain or loss on holding	1800		90800-89000
	Security fair value adjustment		1800
	(Adjustment in trading securities)
7	Salaries and Wages payable	3900		15800-11900
	Slaries (Expense)		3900
	(Correcting entry for expense)
8	Equipment	36200
	Depreciation (Expense)	4525		36200/8
	repairs and Maintainance		36200
	Accumulated expenses		4525
	(Correcting entry for purchases)
9	Prepaid insurance	6000		12000-2000-4000
	Insurance (Expense)	4000		12000*12/36
	Retained Earnings		10000
	(Correcting entry for insurance)
10	Amortization (Expense)	4550		45500/10
	Retained Earnings	4550		45500/10
	Trademark		9100
	(Amortization expense)