Question

You have been engaged to review the financial statements of Gottschalk Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows.

1. Year-end wages payable of \(3,400 were not recorded because the bookkeeper thought that “they were immaterial.”

2. Accrued vacation pay for the year of \)31,100 was not recorded because the bookkeeper “never heard that you had to do it.”

3. Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of \(2,640 because “the amount of the check is about the same every year.” 4. Reported sales revenue for the year is \)2,120,000. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state’s Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is $103,400.

Instructions Prepare the necessary correcting entries, assuming that Gottschalk uses a calendar-year basis.

Short answer

All the entries for the correction of errors are recorded in steps 1 to 4.

Step-by-step solution

Part 1

Date	Particulars	Debit ($)	Credit ($)
	Salaries and wages expense
	Salaries and wages Payable	3,400
	(Being error corrected)		3,400

Part 2

Date	Particulars	Debit ($)	Credit ($)
	Salaries and wages expense	31,100
	Salaries and wages Payable		31,100
	(Being error corrected)

Part 3

Date	Particulars	Debit ($)	Credit ($)
	Prepaid Insurance	2,200
	Insurance expense		2,200
	(Being error corrected)

Part 4

Date	Particulars	Debit ($)	Credit ($)
	Sales revenue	120,000
	Sales taxes payable		120,000
	(Being sales tax due recorded)
	Sales taxes payable	103,400
	Sales tax expense		103,400
	(Being reverse entry recorded)