Conrad Playground Supply underwent a restructuring in 2016. The company conducte

Question

Conrad Playground Supply underwent a restructuring in 2016. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2016 before any adjusting entries or closing entries are prepared. a. Additional computers were acquired at the beginning of 2014 and added to the company’s office network. The $40,000 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. b. Two weeks prior to the audit, the company paid $12,000 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later. c. On December 31, 2015, merchandise inventory was understated by $68,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system. d. Two years earlier, the company recorded a 5% stock dividend (1,000 common shares, $1 par) as follows: Retained earnings 1,000 Common stock 1,000 The shares had a market price at the time of $11 per share. e. At the end of 2015, the company failed to accrue $84,000 of interest expense that accrued during the last four months of 2015 on bonds payable. The bonds, which were issued at face value, mature in 2020. The following entry was recorded on March 1, 2016, when the semiannual interest was paid: Interest expense 126,000 Cash 126,000 f. A three-year liability insurance policy was purchased at the beginning of 2015 for $69,000. 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 2016 related to the situation described. (Ignore income taxes.)

Explanation / Answer

a) Computers Dr 40000       Maintenance Expense Cr 40000 ( To record rectification of entry) Ajustment entry - Depriciation Depriciation expense - computers Dr 8000               Accumulated depriciation - computers Cr 8000 ( To record depriciation 40000/5) b) Raw material Dr 12000                 Office supplies Cr 12000 ( To record rectification of entry) c) Merchandise Inventory Dr 68000                 Cost of goods sold Cr 68000 ( To record rectification of understatement of inventory) d) Retained earnings Dr 10000                  Paid in capital in excess of par Cr 10000 ( To record rectification) 11000 - 1000 ( already recorded) e) Interest expense Dr 84000             Interest accrued Cr 84000 ( To record interest accrued ) March 1 2016 Interest accrued Dr 84000                 Interest expense Cr 84000 ( to rectify error) f) Insurance prepaid Dr 46000              Insurance expense Cr 46000 ( Ti record prepais insurance 69000/3*2)

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