Questor, Inc, repaired a piece of equipment at a cost of $2,000, which Questor,

Question

Questor, Inc, repaired a piece of equipment at a cost of $2,000, which Questor, Inc., paid in cash. Questor equipment . Inc., erroneously capitalized this cost as part of the cost of the Requirements 1. Journalize both the 2. How will this accounting error affect Questor, Inc.'s net income? Ignore depreciation. incorrect entry the accountant made to record this transaction and the correct entry that the accountant should have made. Requirement 1. Journalize both the incorrect entry the accountant made to record this transaction and the correct entry that the accountant should have made. (Record debis first, then credits. Exclude explanations from any journal entries.) Start by jourmalizing the incorrect entry that was made. Journal Entry Date Accounts Debit Credit

Explanation / Answer

Date

Accounts

Debit ($)

Credit($)

Incorrect entry

Equipment A/c……………………………….Dr

2,000

To Cash A/c

2,000

(Being repairs to equipment capitalized)

Correct entry

Repairs A/c………………………………………Dr

2,000

To Cash A/c

2,000

(Being repairs to equipment)

The repairs to Equipment is capitalized as part of cost of the equipment instead of charging it to Profit and Loss Account as Repairs to Equipment. As a result of this error the expense will stand reduced by $2,000 and as a consequence the net income of the company will be overstated by $2,000.

Date

Accounts

Debit ($)

Credit($)

Incorrect entry

Equipment A/c……………………………….Dr

2,000

To Cash A/c

2,000

(Being repairs to equipment capitalized)

Correct entry

Repairs A/c………………………………………Dr

2,000

To Cash A/c

2,000

(Being repairs to equipment)

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