In preparation for the December 31, 2015, year-end, Carolanne was reviewing the records of Holmes Ltd. She discovered a balance of $32,000 in accounts receivable that related to an account received in full in 2014. Upon further investigation, Carolanne discovered the 2014 journal entry to record receipt of the $32,000 had incorrectly been credited to Revenue, an error that had gone undetected in the 2014 financial statements. Holmes Ltd. pays income taxes at a rate of 22%.
Instructions
1. Journalize the entry to correct the error in 2015.
2. Explain how this correction will be reflected in the statement of changes in equity for the year ended December 31, 2015.
Assuming Holmes Ltd. prepares comparative financial statements, what other impact will this correction have on the financial statements for 2015?