Textbook Problem

Dudley Company failed to recognize the following accruals. It also recorded the prepaid expenses and unearned revenues as expenses and revenues, respectively', in the following year when paid or collected.

The reported pretax income was $20,000 in 2018, $25,000 in 2019, and $23,000 in 2020.

Required:

1. 1. Compute the correct pretax income for 2018, 2019, and 2020.
2. 2. Prepare the journal entries necessary in 2020 if the errors are discovered at the end of that year. Ignore income taxes.
3. 3. Prepare the journal entries necessary in 2021 if the errors are discovered at the end of that year. Ignore income taxes.