At the end of 2017, while auditing Sandlin Company’s books, before the books have been closed, you find the following items:
a. A building with a 30-year life (no residual value, depreciated using the straight-line method) was purchased on January 1, 2017, by issuing a $90,000 non-interest-bearing, 4-year note. The entry made to record the purchase was a debit to Building and a credit to Notes Payable for $90,000; 12% is a fair rate of interest on the note.
b. The inventory at the end of 2017 was found to be overstated by $15,000. At the same time, it was discovered that the inventory at the end of 2016 had been overstated by $35,000. The company uses the perpetual inventory system.
c. For the last 3 years, the company has failed to accrue salaries and wages. The correct amounts at the end of each year were: 2015, $12,000; 2016, $18,000; and 2017, $10,000.
Required:
1. Prepare journal entries to correct the errors. Ignore income taxes.
2. Assume, instead, that the company discovered the errors after it had closed the books. Prepare journal entries to correct the errors. Ignore income taxes.