Exercise 22-17 The reported net incomes for the first 2 years of Sunland Product

Question

Exercise 22-17

The reported net incomes for the first 2 years of Sunland Products, Inc., were as follows: 2017, $139,100; 2018, $189,700. Early in 2019, the following errors were discovered.

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

1. Depreciation of equipment for 2017 was overstated $15,900. 2. Depreciation of equipment for 2018 was understated $36,700. 3. December 31, 2017, inventory was understated $52,300. 4. December 31, 2018, inventory was overstated $16,300.

Explanation / Answer

Journal entry:

Account Titles & explanation Debit Credit   
Retained earnings                37,100     
                Inventory          16,300    
               Accumulated Depreciation - equipment          20,800

Working:

Overstatement of Ending Inventory 16300   
Overstated 2017 Depreiation -15900   
Understatement of 2018 depreciation 36700   
Total effect of eror on Retained Earnings 37100

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