Error Correction Entries
Response to the following problem:
The first audit of the books of Bruce Gingrich Company was made for the year ended December 31, 2015. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years.
These items are:
1. At the beginning of 2013, the company purchased a machine for $510,000 (salvage value of $51,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation, but failed to deduct the salvage value in computing the depreciation base for the 3 years.
2. At the end of 2014, the company failed to accrue sales salaries of $45,000.
3. A tax lawsuit that involved the year 2013 was settled late in 2015. It was determined that the company owed an additional $85,000 in taxes related to 2013. The company did not record a liability in 2013 or 2014 because the possibility of loss was considered remote, and charged the $85,000 to a loss account in 2015.
4. Gingrich Company purchased a copyright from another company early in 2013 for $45,000. Gingrich had not amortized the copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years.
5. In 2015, the company wrote off $87,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings.
Instructions
Prepare the journal entries necessary in 2015 to correct the books, assuming that the books have not been closed. Disregard effects of corrections on income tax.