Analysis and Correction of Accounting Errors

Haley Corporation began operation on December 31, 2020. The controller for Haley Corporation is concerned about certain business transactions that the company detected during 2022. The transactions at issue are presented below:

A. Haley Corporation has mistakenly recognized bad debt expense when the receivables have actually become uncollectible in the following amounts:

2021 : 31,800

2022: 65,000

The controller estimates that bad debt expense based on a GAAP accepted method (the percentage of accounts receivable) should be $54,000 for 2021, and $83,000 for 2022.

B. Invventory has been shipped on cosignment. These transactions have been mistakenly recorded as ordinary sales and billed as such on account. Inventory billed and in the hands of consignees amounted to $280,000 at December 31, 2021, and $425,000 at December 31, 2022. The cost of goods sold is 80% of the selling price in each year. Assume that all the consigned inventory is sold in the following year. The company uses the perpetual inventory system.

C. Endind inventory was overstated by $8,000 on December 31, 2021, and overstated by $5,000 on December 31, 2022.

D. On January 1, 2021, a truck was purchased for $28,000. The truck had an estimated life of eight years, but it was immediately expensed of error. The acquisition cost should have been capitalized, and straight-line depreciation should have been used with $2,000 estimated salvage value.

Require: Assuming that the books have not been be closed for 2022, please prepare the journal entries necessary to correct errors at December 31, 2022.