The reported net incomes for the first 2 years of Sinclair
Products, Inc., were as follows: 2010, $147,000; 2011, $185,000. Early in 2012,
the following errors were discovered.
1. Depreciation of equipment for 2010 was overstated $19,000.
2. Depreciation of equipment for 2011 was understated
$38,500.
3. December 31, 2010, inventory was understated $50,000.
4. December 31, 2011, inventory was overstated $14,200.
Instructions:
Prepare the correcting entry necessary when these errors are discovered. Assume that the books for 2011 are closed. (Ignore income tax considerations.) (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3, 2.).
Retained Earnings....................................................................... 19,500
Accumulated
Depreciation—Equipment ($38,500 – $19,000)......................... 19,500
(To correct for depreciation
errors—net understatement of expense which resulted in overstated NI & RE)
Retained Earnings....................................................................... 14,200
Inventory........................................................................................... 14,200
(To correct for inventory
errors—12/31/10 error has counterbalanced by 2012, so no entry needed; but must
correct 12/31/11 ending inventory overstatement which resulted in understated
COGS and overstated NI & RE)
