Instructions X The following are independent errors made by a company that uses the periodic inventory system: a. Goods in transit, purchased on credit and shipped FOB destination, $10,000, were included in purchases but not in the physical count of ending inventory b. Purchase of a machine for $2,000 was expensed. The machine has a 4-year life, no residual value, and straightline depreciation is used. C. Wages payable of $2,000 were not accrued. d. Payment of next year's rent, $4,000, was recorded as rent expense. e. Allowance for doubtful accounts of $5,000 was not recorded. The company normally uses the aging method. f. Equipment with a book value of $70,000 and a fair value of $100,000 was sold at the beginning of the year. A 2-year, non-interest-bearing note for $129,960 was received and recorded at its face value, and a gain of $59,960 was recognized. No interest revenue was recorded and 14% is a fair rate of interest Required: 1. Next Level Indicate the effect of each of the preceding errors on the company's assets, liabilities, shareholders' equity, and net income in the year in which the error occurs. State whether the error causes an overstatement (+), an understatement (-), or no effect (NE). 2. Prepare the correcting journal entry or entries required at the beginning of the year for each of the preceding errors, assuming the company discovers the error in the year after it was made. Ignore income taxes. CHART OF ACCOUNTS Chapter 22 General Ledger REVENUE 411 Sales Revenue 421 Interest Income 436 Gain on Sale of Equipment ASSETS 111 Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 131 Notes Receivable 132 Discount on Notes Receivable 141 Inventory 152 Prepaid Insurance 153 Prepaid Rent 181 Equipment 189 Accumulated Depreciation EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 513 Rent Expense 521 Wages Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense LIABILITIES 211 Accounts Payable 221 Notes Payable 231 Wages Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings 2. Prepare entries to correct the following errors on January 1: a. Goods in transit, purchased on credit and shipped FOB destination, $10,000, were included in purchases but not in the physical count of ending inventory. General Journal Instructions Question not attempted. PAGE 1 GENERAL JOURNAL Score: 0/25 DATE ACCOUNT TITLE POST. REF DEBIT CREDIT 1 2 b. Purchase of a machine for $2,000 was expensed. The machine has a 4-year life, no residual value, and straight-line depreciation is used. General Journal Instructions Question not attempted. PAGE 1 GENERAL JOURNAL Score: 0/37 DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3 c. Wages payable of $2,000 were not accrued. Assume the wages are unpaid at the time of the entry. General Journal Instructions Question not attempted. PAGE 1 GENERAL JOURNAL Score: 0/25 DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 d. Payment of next year's rent, $4,000, was recorded as rent expense. General Journal Instructions Question not attempted. PAGE 1 GENERAL JOURNAL Score: 0/25 DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 2 e. Allowance for doubtful accounts of $5,000 was not recorded. The company normally uses the aging method. General Journal Instructions Question not attempted. PAGE 1 GENERAL JOURNAL Score: 0/25 DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 f. Equipment with a book value of $70,000 and a fair value of $100,000 was sold at the beginning of the year. A 2-year, non-interest-bearing note for $129,960 was received and recorded at its face value, and a gain of $59,960 was recognized. No interest revenue was recorded and 14% is a fair rate of interest. f(1). Record the adjustment needed to correct the sale of equipment. General Journal Instructions Question not attempted. PAGE 1 GENERAL JOURNAL Score: 0/25 DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 f (2). Prepare the adjustment needed to correct interest related to the note. General Journal Instructions Question not attempted. PAGE 1 GENERAL JOURNAL Score: 0/25 DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2