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You have been engaged to review the financial statements of Pharoah Inc. In the course of your investigation you find a number of irregularities during the current year. 1. Insurance for a 6-month period purchased on October 1 of this year was charged to prepaid insurance in the amount of $4,200. 2. 3. Year-end estimate of bonuses totaled $52,000 and was not recorded because the payment would not be made until next year. Warranty expense averages 5% on current year sales of $4,190,000. Warranty expense is automatically debited for 5% of each sale. During the current year, the company also paid $188,550 in warranty related claims. The bookkeeper thought that the payments were an expense and debited warranty expense.

You have been engaged to review the financial statements of Pharoah Inc. In the course of your investigation you find a number of irregularities during the current year. 1. Insurance for a 6-month period purchased on October 1 of this year was charged to prepaid insurance in the amount of $4,200. 2. 3. Year-end estimate of bonuses totaled $52,000 and was not recorded because the payment would not be made until next year. Warranty expense averages 5% on current year sales of $4,190,000. Warranty expense is automatically debited for 5% of each sale. During the current year, the company also paid $188,550 in warranty related claims. The bookkeeper thought that the payments were an expense and debited warranty expense.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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You have been engaged to review the financial statements of Pharoah Inc. In the course of your investigation you find a number of irregularities during the current year. 1. 2. 3. 4. Insurance for a 6-month period purchased on October 1 of this year was charged to prepaid insurance in the amount of $4,200. Year-end estimate of bonuses totaled $52,000 and was not recorded because the payment would not be made until next year. Warranty expense averages 5% on current year sales of $4,190,000. Warranty expense is automatically debited for 5% of each sale. During the current year, the company also paid $188,550 in warranty related claims. The bookkeeper thought that the payments were an expense and debited warranty expense. Office rent is paid quarterly in advance. The first quarter rent for next year ($27,000) was paid in December and rent expense was debited. Prepare the necessary correcting entries, assuming that Pharoah Inc, uses a calendar-year basis. (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 o for the amounts. List all debit entries before credit entries.)
Transcribed Image Text:You have been engaged to review the financial statements of Pharoah Inc. In the course of your investigation you find a number of irregularities during the current year. 1. 2. 3. 4. Insurance for a 6-month period purchased on October 1 of this year was charged to prepaid insurance in the amount of $4,200. Year-end estimate of bonuses totaled $52,000 and was not recorded because the payment would not be made until next year. Warranty expense averages 5% on current year sales of $4,190,000. Warranty expense is automatically debited for 5% of each sale. During the current year, the company also paid $188,550 in warranty related claims. The bookkeeper thought that the payments were an expense and debited warranty expense. Office rent is paid quarterly in advance. The first quarter rent for next year ($27,000) was paid in December and rent expense was debited. Prepare the necessary correcting entries, assuming that Pharoah Inc, uses a calendar-year basis. (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 o for the amounts. List all debit entries before credit entries.)
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