Meagan Co. has the following errors on its books as of December 31, 2018. The books for 2018 have not yet been closed.
a.On January 1, 2016, a truck had been purchased for $28,000. The truck had an estimated life of eight years, but it was expensed in error. Straight-line depreciation with $2,000 salvage value should have been used.b.On January 1, 2017, the company recorded the purchase of a machine in exchange for a four-year, noninterest-bearing note in the amount of $20,000. Interest rates were then 10%, but no recognition was made of that fact. The present value of $1 at 10% for four periods is 0.683013. (Ignore depreciation.)?
Required:Prepare journal entries to correct these errors at December 31, 2018. Ignore income taxes.
What will be an ideal response?
| a. | Truck | 28,000 | ? | |||
| ? | Depreciation Expense [($28,000-$2,000)/8] | 3,250 | ? | |||
| ? | ? | Accumulated Depreciation ($3,250´3) | ? | 9,750 | ||
| ? | ? | Retained Earnings | ? | 21,500 | ||
| ? | ? | ? | ? | |||
| b. | Correcting entry: | ? | ? | |||
| ? | Interest Expense | 1,503 | ? | |||
| ? | Discount on Note Payable | 3,471 | ? | |||
| ? | Retained Earnings | 1,366 | ? | |||
| ? | ? | Machinery | ? | 6,340 | ||
| ? | ? | ? | ? | |||
| ? | Note:The entries below should have been made. | ? | ? | |||
| ? | ? | ? | ? | ? | ||
| ? | Jan. 1, 2017 | Machinery | 13,660 | ? | ||
| ? | ? | Discount on Note Payable | 6,340 | ? | ||
| ? | ? | ? | Note Payable | ? | 20,000 | |
| ? | ? | ? | ? | ? | ||
| ? | Dec. 31, 2017 | Interest Expense | 1,366 | ? | ||
| ? | ? | ? | Discount on Note Payable | ? | ? | |
| ? | ? | ? | (0.10´$13,660) | ? | 1,366 | |
| ? | ? | ? | ? | ? | ||
| ? | Dec. 31, 2018 | Interest Expense | 1,503 | ? | ||
| ? | ? | ? | Discount on Note Payable | ? | ? | |
| ? | ? | ? | [0.10´($13,660 + $1,366)] | ? | 1,503 | |
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