RECOMMENDED ADJUSTING JOURNAL ENTRIES

Consider each of the below two (2) separate and un-related situations, for a company with a fiscal year end of December 31.

REQUIRED for each of the two situations:

(a) briefly identify the nature of the accounting misstatement for the year ended December 31.

(b) state which accounts are OVER or UNDER stated as at December 31, and

(c) provide a recommendation for an adjusting entry to correct the misstatement for the audit year ended December 31.

Write your journal entry in the form of:

Debit: Account Name $xxx

Credit: Account Name $xxx

SITUATION 1:

On December 1, the company purchased a new piece of equipment for $950,000, the cost of which was debited to a new Fixed Asset "Equipment" and credited to "Accounts Payable". In order to bring this asset into a state of readiness for its intended use, the company paid $70,000 in labour costs. The company debited an operating expense, "Labour Expense" and credited "Salaries Payable" when it paid the $70,000 in cash on December 30.

SITUATION 2:

The company's accountant went on vacation from December 23 to January 3. The company experienced some water damage on December 27 and hired Brenda the Plumber to fix the problem on December 28. The entire job was completed the same day. Brenda said the company could pay her the $2,000 owed for the work by January 30. When the company's accountant returned to the office on January 4, she recorded the journal entry for that same day(January 4) with a debit to "Repairs Expense" and credit to "Accounts Payable"