Question

Conrad Playground Supply underwent a restructuring in 2021. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries are prepared.

1. Additional computers were acquired at the beginning of 2019 and added to the company’s office network. The $46,000 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method.
2. Two weeks prior to the audit, the company paid $18,000 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later.
3. On December 31, 2020, merchandise inventory was understated by $80,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system.
4. Two years earlier, the company recorded a 5% stock dividend (2,200 common shares, $1 par) as follows:

Retained earnings	2,200
Common stock		2,200

The shares had a market price at the time of $11 per share.

5. At the end of 2020, the company failed to accrue $108,000 of interest expense that accrued during the last four months of 2020 on bonds payable. The bonds, which were issued at face value, mature in 2025. The following entry was recorded on March 1, 2021, when the semiannual interest was paid, as well as on September 1 of each year:

Interest expense	162,000
Cash		162,000

6. A three-year liability insurance policy was purchased at the beginning of 2020 for $72,600. The full premium was debited to insurance expense at the time.

Required:
For each error, prepare any journal entry necessary to correct the error, as well as any year-end adjusting entry for 2021 related to the situation described. (Ignore income taxes.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

No.	General Journal	Debit ($)	Credit ($)
a(1)	Equipment	46,000
	Accumulated depreciation ($46,000/5 *2)		18,400
	Retained earnings		27,600
a(2)	Depreciation expense ($46,000/5)	9,200
	Accumulated depreciation		9,200
b(1)	Cash	18,000
	Office supplies		18,000
b(2)	Tools	18,000
	Cash		18,000
c(1)	Inventory	80,000
	Retained earnings		80,000
c(2)	No Journal Entry Required
d(1)	Retained earnings (2,200*$11) - 2,200	22,000
	Paid-in capital in excess of par		22,000
d(2)	No Journal Entry Required
e(1)	Retained earnings	108,000
	Interest expense		108,000
e(2)	Interest expense	108,000
	Interest payable		108,000
f(1)	Prepaid insurance (72,600/3 * 2)	48,400
	Retained earnings		48,400
f(2)	Insurance expense	24,200
	Prepaid insurance		24,200