Q1. Lowell Corporation has used the accrual basis of accounting for several years. A review of the records, however, indicates that some expenses and revenues have been handled on a cash basis because of errors made by an inexperienced bookkeeper. Income statements prepared by the bookkeeper reported $29,000 net income for 2019 and $37,000 net income for 2020. Further examination of the records reveals that the following items were handled improperly. The books are open for 2020. 1. Rent was received from a tenant in December 2019. The amount, $1,000, was recorded as revenue at that time even though the rental pertained to 2020. Certain wages payable on December 31 have been consistently omitted from the records of that date and have been entered as expenses when paid in the following year. The amounts of the accruals recorded in this manner were: 31-Dec-18 31-Dec-19 31-Dec-20 1,100 1,200 940 3. Invoices for certain supplies purchased have been charged to expense accounts when received. Inventories of those supplies on hand at the end of each year have been ignored, and no entry has been made for them. 31-Dec-18 1,300 31-Dec-19 940 31-Dec-20 1,420 Below is a schedule showing the derivation of corrected net income for the years 2019 and 2020. 2020 2019 $29,000 (1000) 1100 (1200) $37,000 1000 Net income, with errors Rent received in 2019, earned in 2020 Wages not accrued, 12/31/18 Wages not accrued, 12/31/19 Wages not accrued, 12/31/20 Supplies cost not deferred, 12/31/18 Supplies cost not deferred, 12/31/19 Supplies cost not deferred, 12/31/20 Corrected net income 1200 (940) 200) (1300) 940 (940) 1420 $38.740 $27.540 1. Make the 12/31/2020 correcting entries. Use three journal entries (one for rent, one for wages, and one for supplies). Show calculations below each entry. Select from the following accounts when preparing your entries. Unearned Rent Rent Revenue Wages Payable Wages Expense Supplies Supplies Expense RE (1/1/2020) a Correcting entry for rent: b Correcting entry for wages: c Correcting entry for supplies: 2: Below you will find account balances related to wages and supplies with errors described above. Show the adjustments in the tables below and corrected balances for each account. No journal entries are required. 2018 2019 2020 20,000 23,000 18,500 Wages Expense (with errors) Adjustment(s) 2018 error 2019 error 2020 error Wages Expense (as corrected) 2,300 2,500 1,900 Wages Payable (with errors) Adjustment(s) 2018 error 2019 error 2020 error Wages Payable (as corrected) 2018 2019 2020 15,000 18,000 16,800 Supplies Expense (with errors) Adjustment(s) 2018 error 2019 error 2020 error Supplies Expense (as corrected) 1,800 1,300 1,250 Supplies (with errors) Adjustment(s) 2018 error 2019 error 2020 error Supplies (as corrected)
