The correcting and adjusting entries ensure accurate financial reporting for Conrad Playground Supply in 2021. The company's records now reflect the correct treatment of past errors and adjustments for the current year.
let's provide the full answer with the necessary journal entries for each error and the adjusting entries for 2021:
1. **Additional computers acquired in 2019:**
- Corrective Entry: Debit Accumulated Depreciation - Computers, Credit Computers
- Adjusting Entry (2021): Debit Depreciation Expense - Computers, Credit Accumulated Depreciation - Computers
2. **Assembly tools recorded as office supplies:**
- Corrective Entry: Debit Office Supplies Expense, Credit Assembly Tools
- Adjusting Entry (2021): Debit Assembly Tools Expense, Credit Office Supplies Expense
3. **Merchandise inventory understated at the end of 2020:**
- Adjusting Entry (2021): Debit Merchandise Inventory, Credit Retained Earnings
4. **4% stock dividend recorded two years earlier:**
- Corrective Entry: No entry required (since the stock dividend was correctly recorded initially)
- Adjusting Entry (2021): Debit Retained Earnings, Credit Common Stock (for the fair value of the additional shares issued)
5. **Interest expense not accrued at the end of 2020:**
- Adjusting Entry (2021): Debit Interest Expense, Credit Interest Payable
6. **Liability insurance premium:**
- Adjusting Entry (2021): Debit Prepaid Insurance, Credit Insurance Expense
Complete question:-
Conrad Playground Supply underwent a restructuring in 2021. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries are prepared.
Additional computers were acquired at the beginning of 2019 and added to the company’s office network. The $41,000 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 $13,000 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later.
On December 31, 2020, merchandise inventory was understated by $70,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system.
Two years earlier, the company recorded a 4% stock dividend (1,200 common shares, $1 par) as follows:
Retained earnings 1,200
Common stock 1,200
The shares had a market price at the time of $12 per share.
At the end of 2020, the company failed to accrue $88,000 of interest expense that accrued during the last four months of 2020 on bonds payable. The bonds, which were issued at face value, mature in 2025. The following entry was recorded on March 1, 2021, when the semiannual interest was paid, as well as on September 1 of each year:
Interest expense 132,000
Cash 132,000
A three-year liability insurance policy was purchased at the beginning of 2020 for $69,600. 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 2021 related to the situation described. (Ignore income taxes.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)