Question

Exercise 22-17

The reported net incomes for the first 2 years of Sage Products, Inc., were as follows: 2017, $160,800; 2018, $175,800. Early in 2019, the following errors were discovered.

1.		Depreciation of equipment for 2017 was overstated $17,600.
2.		Depreciation of equipment for 2018 was understated $37,400.
3.		December 31, 2017, inventory was understated $45,000.
4.		December 31, 2018, inventory was overstated $16,400.

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

Answer 1

Correction Entries:

1. Depreciation of equipment for 2017 was overstated $17,600.

Value of Equipment should be increased by $ 17600 to correct this error

Particulars	Debit ($)	Credit ($)
Equipment A/c .... Dr Profit & Loss A/c.....Cr	17600	17600

2.Depreciation of equipment for 2018 was understated $37,400.

Book Value of Equipment should be reduced by $ 37400 to correct this error

Particulars	Debit ($)	Credit ($)
Profit and Loss A/c .... Dr Equipment A/c.....Cr	37400	37400

3. December 31, 2017, inventory was understated $45,000.

In this case no Entry is required.

4. December 31, 2018, inventory was overstated $16,400.

Value of Inventory should be reduced by $ 16400 to correct this Error

Particulars	Debit ($)	Credit ($)
Profit and Loss A/c .... Dr Inventory A/c.....Cr	16400	16400