Question

The reported net incomes for the first 2 years of Coronado Products, Inc., were as follows: 2020, $147,800; 2021, $202,000. Early in 2022, the following errors were discovered.

1.		Depreciation of equipment for 2020 was overstated $15,900.
2.		Depreciation of equipment for 2021 was understated $38,300.
3.		December 31, 2020, inventory was understated $49,500.
4.		December 31, 2021, inventory was overstated $14,900.

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
Enter an account title	Enter a debit amount	Enter a credit amount
Enter an account title	Enter a debit amount	Enter a credit amount
Enter an account title	Enter a debit amount	Enter a credit amount

Answer 1

Answer:

Account Titles and Explanation	Debit	Credit
Retained Earnings ($38,300 - $15,900)	22,400
Accumulated Depreciation—Equipment		22,400
(To record rectification of net depreciation error in 2020 & 2021)
Retained Earnings	14,900
Inventory		14,900
(To record rectification of overstated inventory error in 2021)

Note : Understatement of December 31, 2020, inventory does not need any rectification entry in 2021 as it is auto balanced by the understatement of beginning inventory on January 01, 2021.