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Exercise 5: You have been engaged to review the financial statements of Water Sync Inc....

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Question

Accounting

Exercise 5: You have been engaged to review the financial statements of Water Sync Inc. In the course of your investigation you find a number of irregularities during the current year.

1. Insurance for a 6-month period purchased on October 1 of this year was charged to prepaid insurance

in the amount of $5,000.

2. Year-end estimate of bonuses totaled $61,000 and was not recorded because the payment would

not be made until next year.

3. Warranty expense averages 5% on current year sales of $5,000,000. Warranty expense is automatically debited for 5% of each sale. During the current year, the company also paid $225,000 in

warranty related claims. The bookkeeper thought that the payments were an expense and debited

warranty expense.

4. Office rent is paid quarterly in advance. The first quarter rent for next year ($25,000) was paid in

December and rent expense was debited.

Instructions

Prepare the necessary correcting entries, assuming that Sync Inc. uses a calendar-year basis.

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