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. a. Additional computers were acquired at the beginning of 2011 and added to the company’s office network. The $40,500 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. b. Two weeks prior to the audit, the company paid $12,500 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later. c. On December 31, 2012, merchandise inventory was understated by $69,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system. d. Two years earlier, the company recorded a 3% stock dividend (1,100 common shares, $1 par) as follows: Retained earnings 1,100 Common stock 1,100 The shares had a market price at the time of $13 per share. e. At the end of 2012, the company failed to accrue $86,000 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: Interest expense 129,000 Cash 129,000 f. A three-year liability insurance policy was purchased at the beginning of 2012 for $69,300. 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 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.)

Explanation / Answer

Answer:

a(1) Equipment A/C Dr.40500

         To Accumulated dep A/C         $16200

         To Retained earnings A/C          $24300

a(2) Depreciation expense A/C Dr. $8100

          To Accumulated dep A/C                               $8100

Working Note: To correct the error:

Accumulated depreciation ([$40,500 ÷ 5] × 2 years) =16200

Retained earnings ($40,500 – [$8,100 × 2 years]) = 24,300

2013 adjusting entry: Depreciation expense ($40,500 ÷ 5) = 8,100

b(1) Tool A/C Dr. $12500

          To office supplies A/C            $12500

b(2) No journal entry required

c(1) Inventory A/C Dr. $69000

         To Retained Earnings A/C           $69000

C(2) No journal entry required

d(1) Retained Earnings A/C Dr. $13200

          To Paid in capital-Excess of Par A/C              $13200

d(2) No journal entry required

e(1) Retained Earnings A/C Dr. $86000

          To Interest expense A/C              $86000

e(2) Interest expense A/C Dr. $86000

          To interest payable A/C                $86000

f(1) Prepaid insurance A/C Dr. $46200

           To retained earnings A/C                $46200

F(2) Insurance expense A/C Dr.$23100

         To prepaid insurance A/C                 $23100

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.