6. Your firm is conducting an audit of the 2016 financial statements of Help Inc
ID: 2481859 • Letter: 6
Question
6. Your firm is conducting an audit of the 2016 financial statements of Help Incorporated and found the following errors. Please identify the journal entries to correct each. Assume that the books for 2016 are still open.
a. Purchased office equipment on January 1, 2015 for $45,000 and debited office supplies. The equipment has a 5-year useful life and no salvage value. The company uses straight-line depreciation.
b. On January 1, 2015, Help Incorporated entered into an agreement lease space to a tenant for five years. Help Inc. received a total payment of $60,000 for the first month’s rent, the last month’s rent and a security deposit, each representing one-third of the total.
c. In June 2015, the Company purchased $25,000 of supplies and recorded them as an expense. At the end of 2015, $15,000 remained. At the end of 2016, the balance of suppliers totaled $3,000.
Explanation / Answer
Journal Entry Date Particulars Dr. Amt. Cr. Amt a. 1. Office Equipment Dr. 45000 To Office Supplies 45000 (Record the rectifying entry for the purchase of Office Equiment) a. 2. Retained Earnings Dr. 9000 To Accumulated Dep. - Office Equip. 9000 (Record the depreciation expense for the year 2015) Dep. On Office Equipment = 45000 / 5 Years = $9000 a. 3. Dep. Exp. Dr. 9000 To Accumulated Dep. - Office Equip. 9000 (Record the depreciation expense for the year 2016) b. Security Deposit-Leased Space Dr. 20000 To Retianed Earnings 20000 (Record the adjusting entry for Security deposit paid for Leased Space in 2015) c.1 Office Supplies Dr. 15000 To Retained Earnings 15000 (Record the adjusting entry for supplies for 2015) c.2 Supplies exp. Dr. 12000 Office Supplies 12000 (Record the supplies used in the year 2016)
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