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 $12,000 for Year 1. Record the correcting entries in Year 2.
Prepare journal entry to record the correcting entries for the Year 2
Correcting entry:
When an incorrect entry is journalized and posted to wrong account it must be corrected using the proper entry. As a result, while there is an occurrence of error the correcting entry is required to be made.
Prepare journal entry to record the correcting entries for the Year 2
Date | Account Titles and explanation | Debit ($) | Credit ($) |
 | Retained earnings | 40,000 |  |
 |     Interest payable |  | 40,000 |
 | ( To record interest payable) |  |  |
(Table 1)
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