Question

Exercise 5-2 Error correction (LO5-2)

Bettner, Inc., is a calendar-year corporation whose financial statements for 20X0 and 20X1 included errors as follows:

Year	Ending Inventory			Depreciation Expense
20X0	$	12,000	overstated	$	22,300	overstated
20X1		8,000	understated		6,000	understated

Assume that inventory purchases were recorded correctly and that no correcting entries were made at December 31, 20X0, or December 31, 20X1. The errors were discovered in 20X2, after the 20X1 financial statements were issued.

Required:

1. Ignoring income taxes, prepare the journal entry Bettner would make in 20X2 to correct the errors. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Journal Entry

Date	Accounts Name	Debit	Credit
20X2	Inventory	$8000
	Accumulated depreciation	$16300
	Retained Earnings(20X2)		$24300
	(To record the prior period adjustments made during the year)

Workings:

Errors	Net income ​​​​ (20X0)	Net income (20X1)	Retaines Earnings(20X2)
20X0 ending inventory $12000 overstated	$12000 overstated	$12000 understated	No change
20X1 ending inventory $8000 understated	No effect	$8000 understated	$8000 understated
20X0 depreciation expense $22300 overstated	$22300 understated	No effect	$22300 understated
20X1 depreciation expense $6000 understated	No effect	$6000 overstated	$6000 overstated

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