Error: Analysis and Correction On July 1 of Year 8, a full year’s insurance premium of $2,400, covering the period July 1 of Year 8 to June 30 of Year 9, was paid and debited to insurance expense. Assume the following: ● The company has a calendar fiscal year. ● January 1 of Year 8, retained earnings balance is $20,000. ● Year 8 reported net income (assuming the error is not discovered) is $22,800. ● Year 9 net income (assuming the error is not discovered) is $30,000. ● Year 10 net income is $40,000. Ignore taxes. Required a. List the effects of the error on affected accounts and on net income in Year 8 and Year 9. Assume no adjusting entry is made on December 31 of Year 8. b. Prepare the entry to record the error if discovered in Year 8. c. Prepare the entry to record the error if discovered in Year 9. Prepare the Year 8 and Year 9 retained earnings sections of the statement of stockholders’ equity. ● Note: If a journal entry isn't required on any of the dates shown, select "N/A—debit" and "N/A—credit" as the account names and leave the Dr. and Cr. answers blank (zero).
Error: Analysis and Correction
On July 1 of Year 8, a full year’s insurance premium of $2,400, covering the period July 1 of Year 8 to June 30 of Year 9, was paid and debited to insurance expense. Assume the following:
● The company has a calendar fiscal year.
● January 1 of Year 8,
● Year 8 reported net income (assuming the error is not discovered) is $22,800.
● Year 9 net income (assuming the error is not discovered) is $30,000.
● Year 10 net income is $40,000. Ignore taxes.
Required
a. List the effects of the error on affected accounts and on net income in Year 8 and Year 9. Assume no
b. Prepare the entry to record the error if discovered in Year 8.
c. Prepare the entry to record the error if discovered in Year 9. Prepare the Year 8 and Year 9 retained earnings sections of the statement of
● Note: If a
d. Prepare the entry (if needed) to record the error if discovered in Year 10. Prepare the Year 9 and Year 10 retained earnings sections of the statement of stockholders’ equity.
● Note: If a journal entry isn't required on any of the dates shown, select "N/A—debit" and "N/A—credit" as the account names and leave the Dr. and Cr. answers blank (zero).
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