Exercise 20-23
Below are three independent and unrelated errors. For each of the three
errors, determine the effect on the income statement and balance sheet
in the 2012 financial statements, and prepare any journal entries each
company should record in 2013 to correct the errors.
Because the financial statements in 2012 have been prepared, the
accounts in 2012 have been closed.
a. On December 31, 2012, Wolfe-Bache Corporation failed to accrue
office supplies expense of $1,800. In January, when it received the
bill from its supplier,
supplier Wolfe-Bache
Wolfe Bache made the following entry:
Office supplies expense
1,800
Cash
1,800
2012: Office supplies expense U/S  Net income O/S Retained
earnings O/S
2013: Office supplies expense O/S
Retained earnings
1,800
Office supplies expense
1,800
© Dr. Chula King
All Rights Received
Exercise 20-23 (continued)
b. On the last day of 2012, Midwest Importers received a $90,000
prepayment from a tenant for 2013 rent of a building. Midwest
recorded the receipt as rent revenue.
In 2012, the $90,000 should have been recorded as unearned rent
2012: Rent revenue O/S Net income O/S Retained earnings
O/S
2013: Rent revenue U/S
Retained
i d earnings
i
90,000
Rent revenue
90,000
© Dr. Chula King
All Rights Received
Exercise 20-23 (continued)
c. At the end of 2012, Dinkins-Lowery Corporation failed to accrue
interest of $8,000 on a note receivable. At the beginning of 2013,
when the company received the cash, it was recorded as interest
revenue.
2012: Interest revenue U/S  Net income U/S  Retained
earnings U/S
2013: Interest revenue O/S
Interest revenue
8 000
8,000
Retained earnings
8,000
© Dr. Chula King
All Rights Received
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