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.)