In preparation for the October 31, 2016, year-end, Frank was reviewing the records of Berkhout Holdings Ltd. In the Vehicle account, he discovered a balance of $18,000 relating to December 2014 vehicle repairs, which should have been recorded as vehicle maintenance expenses. This error had gone undetected in the 2015 financial statements. Berkhout Holdings Ltd. pays income taxes at a rate of 27%.
Instructions
1. Journalize the entry to correct the error in 2016.
2. Explain how this correction will be reflected in the statement of changes in equity for the year ended October 31, 2016.
Assuming Berkhout Holdings Ltd. prepares comparative financial statements, what other impact will this correction have on the financial statements for 2016?