The first audit of the books of Fenimore Company was conducted for the year ended...
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Accounting
The first audit of the books of Fenimore Company was conducted for the year ended December 31, 2022. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years.
Let us say that:
A tax lawsuit that involved the year 2020 was settled late in 2022. It was determined that the company owed an additional $85,000 in taxes related to 2020. The company did not
record a liability in 2020 or 2021 because the possibility of loss was considered remote. Fenimore debited the $85,000 to a loss account in 2022 and credited Cash for the same
amount.
Assuming that the books have not been closed and disregarding the effects of corrections on income tax, Why is there no journal entries necessary in 2022 to correct the books?
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