Explanation Journal entry : Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically. Debit and credit rules: Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts. Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts. Journalize the correction of errors in the given independent situations . a. Journal entry to correct the failure to expense cost of the machine: Date Account Titles and Explanation Post Ref. Debit ($) Credit ($) Retained Earnings 8,100 Accumulated Depreciation 900 Machinery 9,000 (Record expensing the capitalized costs and decrease overstated retained earnings) Table (1) Description: Retained Earnings is an equity account. Since repair expenses which should have been expensed are capitalized, the net income in the prior years was overstated. The equity account is debited to decrease the overstated value. Accumulated Depreciation is a contra-asset account. Since the accumulated depreciation is reduced due to reduced book value of machinery, contra-asset account value decreased, hence, the account is debited. Machinery is an asset account. Since machine book value is reduced, asset account decreased, and a decrease in asset is credited. Working Note: Compute the depreciation expense for the machine under straight-line method for two years, if cost to be expensed is $9,000, useful life is 10 years, and no salvage value . Depreciation expense = [ ( Cost–Salvage value ) × 1 Useful life ] = [ ( $ 9 , 000 – $ 0 ) × 1 10 years ] = $ 900 b. Journal entry to correct the failure to capitalize the purchases of materials for construction contracts: Date Account Titles and Explanation Post Ref

Intermediate Accounting: Reporting and Analysis

2nd Edition

ISBN: 9781285453828

Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher: Cengage Learning

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Chapter 22, Problem 15E

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Journalize the correction of errors in the given independent situations.

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Journalize the correction of errors in the given independent situations.

Solution Summary: The author explains that journal entry is a set of economic events which can be measured in monetary terms.

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