An auditor discovered an error while conducting Black Inc.'s 2016 audit. No errors were corrected during...

An auditor discovered an error while conducting Black Inc.'s 2016 audit. No errors were corrected during 2015.

A 2 year insurance policy was purchased on April 30, 2015. This policy resulted in $24,000 being debited to Prepaid Insurance [On April 30, 2015]. However, no adjustmnet was made on December 31, 2015 or on December 31, 2016.

Required:

Prepare the appropriate journal entries. Assume the 2016 books have not been closed but the tax entries have been completed. The tax rate for all years is 40%. Apply US GAAP.

Make sure to record the appropriate entries regarding taxes.

Solutions

Expert Solution

Journal entries:
S.no.	Accounts title and explanations	Debit $	Credit $
a.	Retained earnings Dr. (24000*8/24)	8000
	Insurance expenses Dr. (24000*12/24)	12000
	Prepaid insurance		20000

b.	Tax Payable Dr.	8000
	Income tax expenses (12000*40%)		4800
	Retained earnings (8000*40%)		3200

ekkarill92 answered 1 year ago

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