Problem Three:

Ignore GST. The following potential errors were discovered during the financial year ending December 31, 2017 for Oscar Ltd:

1. A machine with a cost of $22,500 and accumulated depreciation to the date of sale of $16,000 was sold for $8,000. The sale was recorded by a debit to Cash and a credit to Machinery for $8,000.

2. On April 1, 2017, a franchise was purchased for $120,000 with an estimated 10 year life and no right of renewal. The purchase was correctly recorded, and, at the end of the year, the Oscar Ltds accountant, using the straight-line method, debited Depreciation Expense and credited Franchise for $12,000.

3. Delivery equipment, purchased on July 1, 2017 for $7,900, was debited to the Land account. The equipment has a useful life of 4 years and an estimated residual value of $900. The declining balance method, at twice the straight-line rate, is used for delivery equipment. Because of the recording error, no depreciation was recorded.

4. Oscar Ltd began operations the beginning of January 2017 by purchasing another company for a total cash payment of $470,000. The purchase was correctly recorded, including a debit to Goodwill for $90,000. Because the directors of Oscar Ltd believed that the Goodwill would last 20 years, at the end of 2017, Oscar Ltds accountant, using the straight-line method, prepared an AJE debiting Amortisation Expense and crediting Accumulated Amortisation for $4,500.

5. A machine with a cost of $26,000 and accumulated depreciation to the date of exchange of $19,000 was exchanged on 23 December for a new machine with a cash price of $35,000. A trade-in allowance of $9,000 was allowed on the old machine. The following entry was made:

Machinery 33,000

Accumulated Depreciation Machinery 19,000

Machinery 26,000

Cash 26,000

Required:

Prepare all necessary correcting journal entries. If depreciation/amortisation was supposed to be recorded but wasnt, prepare that JE, as well. Do not reverse the incorrect entry and prepare the correct entry! What is required is the correcting entry. If no mistakes were made, state that in your answer. Do not leave a blank answer or you will lose marks. Assume that the books have not yet been closed.