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In 2017, the new CEO of Watsontown Electric Supply became concerned about the company's apparently position. Wishing to make certain that the grim monthly reports he was receiving from the bookkeeper were accurate, the s financial records. The CPA firm discovered the following facts during the course of prior to any adjusting or closing entries being for 2017 t. A new digi ital imaging system was acquired on January 5, 2016, at a cost of $5,000. Although this asset was expected to be in use for the next four years, the purchase was inadvertently charged to office expense. Per the company's accounting manual, office equipment of this type should be depreciated using the straight-line A used truck, purchased on November 18, 2017, was recorded with this entry with no salvage value assumed 2. To record truck expenditure: DR Vehicle $ 18,000 Management plans to use this truck for three years and then trade it in on a new one. Salvage is has always used straight-line depreciation for fixed assets estimated at $3,000. Watsontown recording a half-year of depreciation in the year the asset is acquired July 1, 2017, the company rented a warehouse for three years. The lease agreement specified that each year's rent be paid in advance, so a check for the first year's rent of $18,000 was issued and recorded as an addition to the Buildings account. 4. Late in 2016, Watsontown collected $23,500 from a customer in full payment of his account. The cash receipt was credited to s bookkeeper was reviewing outstanding receivables and noticed the outstanding balance. Knowing revenue. In 2017, Watsontown's the customer in question had recently died, she wrote off the account. Because Watsontown seldom has bad debts, the uses the direct write-off method whereby it charges Bad debts expense and credits Accounts receivable when an account is deemed uncollectible. as an insurance expense at the time. $8,000 on the anniversary date of the loan. The first interest payment was made on October 1, 2017, and expensed in its entirety 5. A three-year property and casualty insurance policy was purchased in January 2016 for $30,000. The entire amount was recorded 6. On October 1, 2016, Watsontown borrowed $100,000 from a local bank. The loan terms specified annual interest payments of Required: Prenare anv iournal entry necessarv to correct each error as well as anv vear-end adiusting entry for 2017 related to the descriherd < Prev 4 of 5 Next >

Answer 1

Adjusting and rectification Journal Entries:
date	Accounts Title	Debit $	Credit $
1) Dec 31 17	Depreciation expenses	2500
	Digital imaging	5000
	Acc. Dep- DI		2500
	Office expenses		5000
	(being rectification of wrong entry to
	office expenses in 2016 for Digital image sys.
	purchased and appropriate depreciation exp.
	raised for 2016 & 2017)
2) Dec 31 17	Truck	18000
	Depreciation expenses	2500
	Vehicle Expense		18000
	Acc. Dep. - Truck		2500
	(being rectification of wrong entry to
	vehicle expenses for used truck
	purchased and appropriate depreciation exp.
	raised for half year (18000-3000) / 3*2)
3) Dec 31 17	Rent expense	9000
	Prepaid rent	9000
	Buildings		18000
	(being rectification of wrong entry to
	buildings account for rent for warehouse
	for the first year)
4) Dec 31 17	Revenues	23500
	Bad Debts expenses	23500
	Accounts Receivables		47000
	Being wrong entry in 2016 was rectified
	and 2017 bad debts of receivables entry
	made)
5) Dec 31 17	Prepaid Insurance
	Insurance Expense
	(being insurance policy purchased in Jan 16
	entered as insurance expense, now rectified
	and third year's prepaid insurance raised)
6) Dec 31 17	Retained Earnings	2000
	Interest expense		2000
	(being interest for period Oct 1 16 to
	Sep 30 17 was booked in 2017, now
	rectified and year's interest expense
	was reversed with 2016 expense amount
	by debited Retained Earnings)