Krafty Kris, Inc., discovered the following errors after the 2017 financial statements were issued: a. A...

Krafty Kris, Inc., discovered the following errors after the 2017 financial statements were issued:

a. A major supplier shipped inventory valued at $8,550 to Krafty Kris on consignment. This merchandise was mistakenly included in the inventory taken by Krafty Kris on December 31, 2016. (Goods shipped on consignment are the property of the consignor and should not have been included in Krafty Kris's inventory.)

b. Krafty Kris renewed its liability insurance policy on October 1, 2016, paying a $36,000 premium and debiting Insurance expense. No further entries have been made. The premium purchased insurance coverage for a period of 36 months.

c. Repair expense was debited at the time equipment was purchased for $100,000 on January 1, 2017. The equipment has a life of five years; its salvage value is considered immaterial. Krafty uses straight-line depreciation method.

Required:

Prepare journal entries to correct these errors. Ignore income taxes.

Solutions

Expert Solution


Journal entries to correct the errors
Transaction	Account Title	Debit	Credit
a	No Journal Entry Required


b	Prepaid Insurance	$21,000.00
	Retained Earnings		$21,000.00

c	Equipment	$100,000.00
	Accumulated depreciation - Equipment		$20,000.00
	Retained Earnings		$80,000.00


Unexpired prepaid insurance for 21 months credited to Retained Earnings due to excess debit in previous years.
Depreciation on equipment per year = Cost / Useful life = $100000/5 years = $20,000

jeff jeffy answered 1 year ago

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