The unadjusted trial balance of Imagine Ltd., a private company following ASPE, at December 31, 2020 is as follows:

Additional information:

1. On November 1, 2020, Imagine received $10,200 rent from its lessee for a 12-month lease beginning on that date. This was credited to Rent Revenue.

2. Imagine estimates that 7% of the Accounts Receivable balances on December 31, 2020, will be uncollectible.

On December 28, 2020, the bookkeeper incorrectly credited Sales Revenue for a receipt of $1,000 on account. This error had not yet been corrected on December 31.

3. After a physical count, inventory on hand at December 31, 2020, was $77,000.

4. Prepaid insurance contains the premium costs of two policies: Policy A, cost of $1,320, two-year term, taken out on April 1, 2020; Policy B, cost of $1,620, three-year term, taken out on September 1, 2020.

5. The regular rate of depreciation is 10% of cost per year. Acquisitions and retirements during a year are depreciated at half this rate. There were no retirements during the year. On December 31, 2019, the balance of Equipment was $90,000.

6. On April 1, 2020, Imagine issued at par value 50 $1,000, 11% bonds maturing on April 1, 2024. Interest is paid on April 1 and October 1.

7. On August 1, 2020, Imagine purchased at par value 18 $1,000, 12% Legume Inc. bonds, maturing on July 31, 2022. Interest is paid on July 31 and January 31.

8. On May 30, 2020, Imagine rented a warehouse for $1,100 per month and debited Prepaid Rent for an advance payment of $13,200.

9. Imagine?s FV-NI investments consist of shares with total market value of $9,400 as at December 31, 2020.

10. The FV-OCI investment is an investment of 500 shares in Yop Inc., with current market value of $25 per share as at December 31, 2020.

Instructions

a. Prepare the year-end adjusting and correcting entries for December 31, 2020, using the information given. Record the adjusting entry for inventory using a Cost of Goods Sold account.

b. Indicate which of the adjusting entries could be reversed.

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Debit Credit $ 10,850 Cash Accounts receivable Allowance for doubtful accounts 56,500 750 FV-NI investments 8,600 58,000 2,940 13,200 14,000 18,000 10,000 104,000 Inventory Prepaid insurance Prepaid rent FV-OCI investments Bond investment at amortized cost Land Equipment Accumulated depreciation-equipment Accounts payable Bonds payable Common shares 18,000 9,310 50,000 100,000 Retained earnings Sales revenue 103,260 223,310 Rent revenue Purchases 10,200 170,000 Purchase discounts 2,400 Freight out Freight in Salaries and wages expense Interest expense Miscellaneous expense 9,000 3,500 31,000 6,750 890 $517,230 $517,230