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    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 Preview

    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 ...

    Solution Summary

    Entries are given with a sentence explaining strategy.