Part II. In reviewing the accounts in 2014 after the books for the prior year have been closed, you find that the following errors have been made in…

Part II. In reviewing the accounts in 2014 after the books for the prior year have been closed, you find that the following errors have been made in summarizing activities:

                                                                                                        2011         2012            2013     

Overstatement of ending inventory                                               $42,000     $51,000          $29,000

Understatement of accrued advertising expense                               6,600     12,000            7,200

In addition, during the 2014 year-end audit, the following items come to your attention:

Dyke bought equipment on January 1, 2011 for $294,000 with a $24,000 estimated salvage value and a six-year life. The company debited an expense account and credited cash on the purchase date for the entire cost of the asset. (Straight-line method)

(a) Prepare the journal entries necessary at December 31, 2014, to record the above corrections and changes (ignore tax effects).

  • Inventory:
  • Accrued Advertising expense:
  • Depreciation expense:

(b) Compute the total effect of the errors on 2014 net income (show your works).