Omission of Accruals and Prepayments
The Dudley Company failed to recognize the following accruals. It also recorded the prepaid expenses and unearned revenues as expenses and revenues, respectively, in the year of payment or collection.
| |
2006
|
2007
|
2008
|
|
Prepaid expenses
|
$500
|
$900
|
$1,100
|
|
Accrued expenses
|
800
|
700
|
950
|
|
Revenue received in advance
|
300
|
400
|
1,300
|
|
Revenue earned but not received
|
600
|
1,000
|
1,200
|
The reported pretax income was $20,000 in 2006, $25,000 in 2007, and $23,000 in 2008.
Required
1. Compute the correct pretax income for 2006, 2007, and 2008.
2. Prepare the journal entries necessary in 2008 if the errors are discovered at the end of that year. Ignore income taxes.
3. Prepare the journal entries necessary in 2009 if the errors are discovered at the end of that year. Ignore income taxes.