Question

At the end of 2020, Majors Furniture Company failed to accrue $79,000 of interest expense that accrued during the last five months of 2020 on bonds payable. The bonds mature in 2034. The discount on the bonds is amortized by the straight-line method. The following entry was recorded on February 1, 2021, when the semiannual interest was paid:

Interest expense	94,800
Discount on bonds payable		2,340
Cash		92,460

Required:
Prepare any journal entry necessary to correct the errors as of February 2, 2021, when the errors were discovered. Also, prepare any adjusting entry at December 31, 2021, related to the situation described. (Ignore income taxes.) (Do not round your intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the error correction as of February 2, 2021. Note: Enter debits before credits. Date General Journal Debit Credit February 02, 2021

Answer 1

In the given entry the amount of Interest expense represent 6 Month Interest $94,800 $ 79,000 Therefore 5 Month Interest expense = 94,800/6 *5= Discount amortized for 6 Month= $2,340 5 Month Discount amortized=2.340/6*5 $ 1,950 Due to this error in the year 2019 the Interest expense understated by $79,000 and Net income overstated by $79,000 CREDIT To correct the error rectification Journal entry DATE JACCOUNT TITLE AND EXPLANATIONS DEBIT Feb,2 2021 Retained Earnings $ 79,000 Interest Expense $ 79,000 (Prvious year rectified by debiting retained earnings) Dec 31 2021 $ 79,000 Interest Expense Discount on Bond Payable Interest Payable $ $ 77,050 1,950