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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
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 ($) |
| Â | Retained earnings | 40,000 | Â |
| Â | Â Â Â Â Interest payable | Â | 40,000 |
| Â | ( To record interest payable) | Â | Â |
(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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