Question

You have been engaged to review the financial statements of Gottschalk Corporation. In the course of your examination, you conclude the bookkeeper hired is not doing a good job. You notice a number of irregularities as follows.

1. Year end wages payable of $3,400 were not recorded because the bookkeeper thought they were "immaterial."

2. Accrued vacation pay for the year of $31,100 were not recorded because the bookkeeper "never heard that you had to do it."

3. Insurance for a 12 month period was purchased on November 1st of this year was charged to insurance expense in the amount of $2,640 because "the amount of the check is about the same every year."

4. Reported sales revenue for the year is $2,120,000. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the State's Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that "the sales tax was a selling expense." At the end of the current year, the balance in the Sales Tax Expense account is $103,400.

Prepare the necessary correcting entries, assuming Gottschalk Corporation uses a calendar-year basis. The books for the current year have not been closed.

Answer 1

Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Salaries & Wages Expenses	3,400.00
	Salaries & Wages Payable		3,400.00
2	Salaries & Wages Expenses	31,100.00
	Salaries & Wages Payable		31,100.00
3	Prepaid Insurance	2,200.00		$2,640 X 10/12
	Insurance Expense		2,200.00	$2,640 X 10/12
4-1	Sales Revenue	120,000.00		$2,120,000 X 6/106
	Sales Tax Payable		120,000.00	$2,120,000 X 6/106
4-2	Sales Tax Payable	103,400.00
	Sales Tax Expense		103,400.00