Conrad Playground Supply underwent a restructuring in 2013. The company conducte

Question

Conrad Playground Supply underwent a restructuring in 2013. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2013 before any adjusting entries or closing entries are prepared.

Additional computers were acquired at the beginning of 2011 and added to the company’s office network. The $45,500 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.

Two weeks prior to the audit, the company paid $17,500 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later.

On December 31, 2012, merchandise inventory was understated by $79,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system.

At the end of 2012, the company failed to accrue $106,000 of interest expense that accrued during the last four months of 2012 on bonds payable. The bonds, which were issued at face value, mature in 2017. The following entry was recorded on March 1, 2013, when the semiannual interest was paid:

A three-year liability insurance policy was purchased at the beginning of 2012 for $72,300. The full premium was debited to insurance expense at the time.

For each error, prepare any journal entry necessary to correct the error as well as any year-end adjusting entry for 2013 related to the situation described. (Ignore income taxes.) (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

rev: 03_07_2013

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ProblemLearning Objective: 20-06 Understand and apply the four-step process of correcting and reporting errors, regardless of the type of error or the timing of its discovery.

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Conrad Playground Supply underwent a restructuring in 2013. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2013 before any adjusting entries or closing entries are prepared.

Explanation / Answer

Journal entry to correct the error as well as year-end adjusting entry for 2013 related to the situation

A. Recitfication entry

a) Computer dr. 45500

to Maintenance 45500

Adjusting entry

b) (for year ending 2012)

Depreciation a/c dr. 9100

to computer a/c 9100

c) (for year ending 2013)

Depreciation dr. 9100

to computer 9100

B) Retification enrty

Assembly tools dr. 17500

to office expense 17500

C)  Retification enrty

Inventory dr. 79000

profit and loss 79000

E) Interest accured dr 106000

To interest expense 106000

F) accrued insurance expense 48200

to insurance expense 48200

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