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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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In Year 2, Adams Corporation discovered that it forgot to accrue interest expense of $40,000 in Year 1. This overstatement of pretax income was material. The related income tax effect of this error was $12,000 for Year 1. Record the correcting entries in Year 2.

To determine

Prepare journal entry to record the correcting entries for the Year 2

Explanation

Correcting entry:

When an incorrect entry is journalized and posted to wrong account it must be corrected using the proper entry. As a result, while there is an occurrence of error the correcting entry is required to be made.

Prepare journal entry to record the correcting entries for the Year 2

DateAccount Titles and explanationDebit ($)Credit ($)
 Retained earnings40,000 
      Interest payable 40,000
 ( To record interest payable)  

(Table 1)

  • Retained earnings are a component of stockholders equity and there is a decrease in the value of the retained earnings. Hence, debit the retained earnings by $40,000...

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