Question

The first audit of the books of Bruce Gingrich Company was made for the year ended December 31, 2018. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are:

a. At the beginning of 2019, the company purchased a machine for $510,000 (salvage value of $51,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation but failed to deduct the salvage value in computing the depreciation base for the 3 years.
b. At the end of 2020, the company failed to accrue sales salaries of $45,000.
c. A tax lawsuit that involved the year 2019 was settled late in 2021. It was determined that the company owed an additional $81,000 in taxes related to 2019. The company did not record a liability in 2019 or 2020 because the possibility of loss was considered remote, and charged the $81,000 to a loss account in 2021.
d. Swifty Company purchased a copyright from another company early in 2019 for $50,000. Swifty had not amortized the copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years.
e. In 2021, the company wrote off $87,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings.

Required:
Prepare the journal entries necessary in 2018 to correct the books, assuming that the books have not been closed. Disregard effects of corrections on income tax.

Answer 1

The journal entries necessary in 2018 to correct the books of Bruce Gingrich Company include correcting depreciation, accruing sales salaries, recording tax liability, amortizing the copyright, and writing off obsolete inventory.

Step-by-step explanation:

The journal entries necessary in 2018 to correct the books of Bruce Gingrich Company are as follows:

1. To correct the depreciation error:

• Debit Accumulated Depreciation - Machine $51,000
• Credit Machine $51,000

To accrue the sales salaries:

• Debit Salaries Expense $45,000
• Credit Accrued Salaries $45,000

To record the tax liability:

• Debit Tax Expense $81,000
• Credit Tax Liability $81,000

To amortize the copyright:

• Debit Amortization Expense $2,500 ($50,000 / 20 years)
• Credit Accumulated Amortization - Copyright $2,500

To write off obsolete inventory:

• Debit Retained Earnings $87,000
• Credit Inventory $87,000

Answer 2

This is a very long question lol are you still on it? Sorry I’m talking weird it just won’t let me put it until I put a sertian number of sentences