Reference no: EM131118983
Error Correction Entries the first audit of the books of Fennimore Company was made for the year ended December 31, 2010. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are:
1. At the beginning of 2008, the company purchased a machine for $510,000 (salvage value of $51,000) that had a useful life of 5 years. The bookkeeper used straight-line depreciation, but failed to deduct the salvage value in computing the depreciation base for the 3 years.
2. At the end of 2009, the company failed to accrue sales salaries of $45,000.
3. A tax lawsuit that involved the year 2008 was settled late in 2010. It was determined that the company owed an additional $85,000 in taxes related to 2008. The company did not record a liability in 2008 or 2009 because the possibility of loss was considered remote, and debited the $85,000 to a loss account in 2010 and credited Cash for the same amount.
4. Fennimore Company purchased a copyright from another company early in 2008 for $50,000. Fennimore had not amortized the copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years.
5. In 2010, the company wrote off $87,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings and credited to Inventory.
Prepare the journal entries necessary in 2010 to correct the books, assuming that the books have not been closed. Disregard effects of corrections on income tax.
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