Chapter 12, Problem 12.21E

Error corrections; equity method investment

• LO12-6, LO12-7

On December 12, 2018, an equity investment costing $80,000 was sold for $100,000. The investment was carried in the balance sheet at $75,000, and was accounted for under the equity method. An error was made in which the total of the sale proceeds was credited to the investment account.

Required:

1. Prepare the journal entry to correct the error assuming it is discovered before the books are adjusted or closed in 2018. (Ignore income taxes.)

2. Prepare the journal entry to correct the error assuming it is not discovered until early 2019. (Ignore income taxes.)