You
have been engaged to review the financial statements of Lindsay Corporation. In
the course of your examination of the work of the bookkeeper hired during the
year that just ended, you noticed a number of irregularities for the past
fiscal year:
1.
Year-end wages payable of $4,100 were not recorded, because the bookkeeper
thought that “they were immaterial.”
2.
Accrued vacation pay for the year of $29,400 was not recorded, because the
bookkeeper “never heard that you had to do it.”
3.
Insurance that covers a 12-month period and was purchased on November 1 was
charged to insurance expense in the amount of $2,760 “because the amount of the
cheque is about the same every year.”
4.
Reported sales revenue for the year was $2,310,000 and included all sales taxes
charged for the year. The sales tax rate is 5%. Because the sales tax is
forwarded to the provincial ministry of revenue, the bookkeeper thought that
“the sales tax is a selling expense” and therefore debited the Sales Tax
Expense account. At the end of the fiscal year, the balance in the Sales Tax
Expense account was $101,300.
Instructions
Prepare
the necessary correcting entries, assuming that Lindsay Corporation uses a
calendar-year basis and that the books for the fiscal year that just ended are not
yet closed.
1. Wages
Expense......................... 4,100
Wages
Payable..................... 4,100
2. Vacation
Wages Expense................ 29,400
Vacation
Wages Payable............ 29,400
3. Prepaid
Insurance ($2,760 X 10/12).... 2,300
Insurance
Expense................. 2,300
4. Sales
Revenue......................... 110,000
[$2,310,000 ÷ (1.00 + .05) X 5%]
Sales
Tax Payable................. 110,000
Sales Tax
Payable..................... 101,300
Sales
Tax Expense................. 101,300
