Question

The Jessica Co. has the following errors on its books as of December 31, 2018. The books for 2018 have not yet been closed.

a. On January 1, 2016, a machine had been purchased for $6,500. The machine had an estimated life of five years, but it was expensed in error. Straight-line depreciation with no salvage value should have been used.
b. On January 1, 2017, the company bought a four-year insurance policy for $800 and immediately charged the full premium to expense.
Required:
Prepare journal entries to correct these errors on December 31, 2018. Ignore income taxes.

Answer 1

Answer and Explanation:

The journal entry is given below;

a. Machine or equipment $6,500

To Accumulated depreciation ($6,500 × 3 ÷ 5) $3,900

To Retained earnings $2,600

(being the correction of the error is recorded)

b. Prepaid insurance Dr ($800 ÷ 4 × 2 ) $400

To Retained earnings $400

(being the correction of the error is recorded)

These two entries should be recorded to correct the given errors