Question

Prepare journal entries to correct these errors on December 31, 2018. Ignore income taxes and write...

Prepare journal entries to correct these errors on December 31, 2018. Ignore income taxes and write “None’ if no correcting entry is required.  Record the required correcting entry only. You will lose a few points for unnecessary entries.

1) On January 1, 2016, a machine had been purchased for $6,500. The machine had an estimated life of five years, but it was expensed in error. Straight-line depreciation with no salvage value should have been used.

2) On January 1, 2017, the company bought a four-year insurance policy for $800 and immediately charged the full premium to expense.

3)Ending inventory was overstated by $8,000 on December 31, 2016, and overstated by

$5,000 on December 31, 2017.

4) Travel advances to the sales personnel of $15,000 were included as selling expenses for 2017.  The travel occurred in 2018.

Business   Accounting   
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Answer #1
Date Account Title Debit Credit
1 Machine $   6,500.00
    Accumulated Depreciation $   2,600.00
    Retained Earnings $   3,900.00
2 Prepaid Insurance $      600.00
    Retained Earnings $      600.00
(800*3/4)
3 Retained Earnings $   5,000.00
    Inventory $   5,000.00
No adjustment entry is required for overstated Inventory on December 31, 2016, because, it was already adjusted with Net Profit of 2017
4 Travel Advances $ 15,000.00
    Retained Earnings $ 15,000.00
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