Reference no: EM133094291

Question - ABC Inc. is a publicly traded enterprise. The following were observed as at the end of Years 1 and 2:

1. Year-end inventories were understated by $40,000 at the end of Year 1 and understated by $60,000 at the end of Year 2.

2. The company took out a 2-year insurance policy on January 1st, Year 1 for $10,000. This entire amount was expensed during Year 1.

3. Effective January 1st, Year 2, the company decided to move from straight line amortization to declining balance amortization. The company recorded its straight-line amount of depreciation expense for year 2 in the amount of $10,000. Declining balance amortization for the year would have been $20,000.

4. The company purchased machinery on July 1, Year 1 for $180,000. These assets were mistakenly expensed on the date of purchase. Also, on the date of purchase, the assets were estimated to have 9-year useful life with no salvage value. These assets were to be depreciated on a straight-line basis. ABC has a December 31 year-end and is subject to a tax rate of 20%.

Required - Prepare the journal entries required to correct accounts at December 31, Year 2 assuming that the books are open.