Linda Company's auditor: correct errors
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Linda Company's auditor discovered two errors. No errors were corrected during 2005. The errors are described as follows:
- Journal entries
(a) Merchandise costing $4,000 was sold to a customer for $9,000 on December 31, 2005, but it was recorded as a sale on January 2, 2006. The merchandise was properly excluded from the 2005 ending inventory. Assume the periodic inventory system is used.
(b) A machine with a 5-year life was purchased on January 1, 2005. The machine cost $20,000 and has no expected salvage value. No depreciation was taken in 2005 or 2006. Assume the straight-line method for depreciation.
Required: Prepare appropriate journal entries, if any, to correct the above errors (assume that the 2006 books have not been closed). Ignore income taxes.
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Solution Summary
Entries are given with a sentence explaining strategy.
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a) We have to record the entry for sales as the transaction was done on December 31, 2005.
Here periodic inventory system is followed. Periodic inventory systems keep the inventory ...
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