On July 1, 2018 a full year’s insurance premium of $2,400, covering the period July 1, 2018,to June 30, 2019 was paid and debited to insurance expense. Assume the following:
- The company has a calendar fiscal year.
- January 1, 2018, retained earnings balance is $20,000.
- 2018 reported net income (assuming the error is not discovered)is $22,800.
- 2019 net income (assuming the error is not discovered) is $30,000.
- 2020 net income is $40,000. Ignore taxes
REQUIRED:
a.List the effects of the error on affected accounts and on net income in 2018 and 2019,assuming no adjusting entry is made on December 31, 2018.
b.Prepare the entry to record the error if discovered in 2018.
c.Prepare the entry to record the error if discovered in 2019, and the 2018 and 2019 retained earnings sections of the statement of stockholders’ equity.
d.Prepare the entry (if needed) to record the error if discovered in 2020, and the 2019 and 2020 retained earnings sections of the statement of stockholders’ equity.
