An inexperienced accountant made the following entries. In each case, the explanation
to the entry is correct.
Instructions
Prepare the correcting entries.
Answer:
If prepaid costs are initially recorded as an asset, no adjusting entries will be required in
the future.
Answer:
Inventory turnover measures the number of times on the average the inventory was sold
during the period.
Answer:
Sandy Company uses both special journals and a general journal. The company
accountant made the following errors during July.
1> Incorrectly added the credit entries in a customer’s account in the accounts
receivable subsidiary ledger. The total was listed as $2,690; it should have been $2,790.
2> A remittance of $400 from Tom Short was correctly recorded in the cash receipts
journal, but the amount was posted incorrectly to the account of customer Will Short in
the subsidiary ledger.
3> A purchase of merchandise on account from Easton Company for $1,000 was
incorrectly entered in the purchases journal at $10,000.
4> In the sales journal, the entries were incorrectly added for the month. The monthly
total was listed as $24,620; it should have been $24,260.
Instructions
Indicate how each of the above errors might be discovered.
Answer:
Using borrowed money to increase the rate of return on common stockholders’ equity is
called “trading on the equity.”
Answer: