Question

Cherokee Company's auditor discovered some errors. No errors were corrected during 2017. The errors are described as follows: (1.) Beginning inventory on January 1, 2017, was understated by $5,000. (2.) A two-year insurance policy purchased on April 30, 2017, in the amount of $27,000 was debited to Prepaid Insurance. No adjustment was made on December 31, 2017, or on December 31, 2018. Required: Prepare appropriate journal entries (assume the 2018 books have not been closed). Ignore income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

1	No journal entry is required to be reported in 2018 for understatement of beginning inventory on Jan 1 2017 .
	It is self correcting error.
	The ending inventory for 2017 would be the beginning inventory of 2018.Therefore the error in 2017 and 2018
	will balance out by the end of 2017
2	The adjusting entry to record insurance expense for 2017 and 2018 will be as follows:
	Date	Account Title	Debit-$	Credit-$
	31-Dec-18	Insurance Exp ($27000/24)*12)	13500
		Retained Earnings ($27000/24)*8)	9000
		Prepaid Insurance		22500
	Eight Months prepaid insurance expired in 2017 and twelve months prepaid insurance
	expired in 2018.