Omission of Accruals and Prepayments
Response to the following problem:
The Dudley Company failed to recognize the following accruals. It also recorded the prepaid expenses and unearned revenues as expenses and revenues, respectively, in the year of payment or collection.
|
|
2009
|
2010
|
2011
|
|
Prepaid expenses
|
$500
|
$ 900
|
$1,100
|
|
Accrued expenses
|
800
|
700
|
950
|
|
Revenue received in advance
|
300
|
400
|
1,300
|
|
Revenue earned but not received
|
600
|
1,000
|
1,200
|
The reported pretax income was $20,000 in 2009, $25,000 in 2010, and $23,000 in 2011.
Required:
1. Compute the correct pretax income for 2009, 2010, and 2011.
2. Prepare the journal entries necessary in 2011 if the errors are discovered at the end of that year. Ignore income taxes.
3. Prepare the journal entries necessary in 2012 if the errors are discovered at the end of that year. Ignore income taxes.