Journal Entries to Correct Errors
Response to the following problem:
The following are several independent errors made by a company that uses the periodic inventory system:
1. Goods in transit, purchased on credit and shipped FOB destination, $10,000, were included in purchases but not in the ending inventory.
2. A purchase of a machine for $2,000 was expensed. The machine has a four-year life, no residual value, and straight-line depreciation is used.
3. Wages payable of $2,000 were not accrued.
4. Payment of next year's rent, $4,000, was recorded as rent expense.
5. Allowance for doubtful accounts of $5,000 was not recorded. The company normally uses the aging method.
6. Equipment with a book value of $70,000 and a fair value of $100,000 was sold at the beginning of the year. A two-year non-interest-bearing note for $129,960 was received and recorded at its face value. No interest revenue was recorded and 14% is a fair rate of interest.
Required
Prepare the correcting journal entry or entries for each of the preceding errors, assuming the company discovers the error in the year after it was made. (Ignore income taxes.)