The Laura Company has the following errors on its books as of December 31, 2017. The books for 2017 have not yet been closed.
a.In 2017, fully depreciated equipment (with no residual value) that originally cost $8,000 was sold for $700 as scrap. The company credited the $700 proceeds to Equipment.b.On January 1, 2016, the company recorded the purchase of equipment in exchange for a three-year, noninterest-bearing note payable in the amount of $10,000. Interest rates were then 8%, but no recognition was made of this fact. The present value of $1 at 8% for three periods is 0.7938. (Ignore depreciation.)?
Required:Prepare journal entries to correct these errors at December 31, 2017. Ignore income taxes.
What will be an ideal response?
| a. | Accumulated Depreciation | 8,000 | ? | |||
| ? | ? | Equipment | ? | 7,300 | ||
| ? | ? | Gain on Sale of Equipment | ? | 700 | ||
| ? | ? | ? | ? | |||
| b. | Correcting entry: | ? | ? | |||
| ? | Interest Expense | 686 | ? | |||
| ? | Discount on Note Payable | 741 | ? | |||
| ? | Retained Earnings | 635 | ? | |||
| ? | ? | Equipment | ? | 2,062 | ||
| ? | ? | |||||
| ? | Note:The entries below should have been made. | |||||
| ? | Jan. 1, 2016 | Equipment | 7,938 | ? | ||
| ? | ? | Discount on Note Payable | 2,062 | ? | ||
| ? | ? | ? | Note Payable | ? | 10,000 | |
| ? | ? | ? | ? | ? | ||
| ? | Dec. 31, 2016 | Interest Expense | 635 | ? | ||
| ? | ? | ? | Discount on Note Payable | ? | ? | |
| ? | ? | ? | (0.08´$7,938) | ? | 635 | |
| ? | ? | ? | ? | ? | ||
| ? | Dec. 31, 2017 | Interest Expense | 686 | ? | ||
| ? | ? | ? | Discount on Note Payable | ? | ? | |
| ? | ? | ? | [0.08´($7,938 + $635)] | ? | 686 | |
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