Exercise 22-16 You have been engaged to review the financial statements of Sheff
ID: 2581451 • Letter: E
Question
Exercise 22-16
You have been engaged to review the financial statements of Sheffield Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows.
Prepare the necessary correcting entries, assuming that Sheffield uses a calendar-year basis. The books for the current year have not been closed. (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.)
No.
Account Titles and Explanation
Debit
Credit
(To record the sales taxes due.)
(To correct prior entry.)
1. Year-end wages payable of $3,590 were not recorded because the bookkeeper thought that “they were immaterial.” 2. Accrued vacation pay for the year of $29,600 was not recorded because the bookkeeper “never heard that you had to do it.” 3. Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $2,664 because “the amount of the check is about the same every year.” 4. Reported sales revenue for the year is $2,178,300. 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 is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is $107,000.Explanation / Answer
No Account titles and Explanation Debit Credit 1 Wages $3590 Wages Payable $3590 Being expense to be recorded and liability to be created for the payables in same fiscal year 2 Accrued Vacation $29600 Bank account $29600 There are two ways of dealing this. (a) If the above expense is related to personal and not pertains to company then there is no entry to be recorded in company's books. (b) If the above expenses pertains to company then the above entry to be recorded in company's books. 3 Prepaid insurance $2220 Insurance Expense $2220 Out of $2664 insurance paymnet, $444 is pertains to this fiscal year ( 1 Nov to 31 Dec i.e $2664*2/12). As $2664 already charged to Insurance expense, $2220 is to be reversed and carry forward to next fiscal year 4 Sales tax payable $123300 Sales tax expense $107000 Sales Revenue $16300 Sales tax collected = $2178300*6/106 = $123300 is to be payable to revenue department. Out of which $107000 is already dedited to sales tax expense and the same is reversed in the above entry
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