S13-15 (similar to) Young Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of $ 95 comma 000 for utilities expense. The correct amount of the utilities expense was $ 20 comma 000. Requirements 1. Determine the effect of the error on the accounting equation in 2018. 2. How should this error be reported in the 2019 financial statements?

Question

Business

Victoria

22 February, 17:41

S13-15 (similar to) Young Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of $ 95 comma 000 for utilities expense. The correct amount of the utilities expense was $ 20 comma 000. Requirements 1. Determine the effect of the error on the accounting equation in 2018. 2. How should this error be reported in the 2019 financial statements?

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Deangelo Rasmussen · Answer 1

Answer and Explanation:

1. The effect of the error on the accounting equation in 2018 is shown below:-

Error utilities expenses = Correct utilities expenses in 2018 - Wrongly entered utilities expenses

= $95,000 - $20,000

= $75,000

Here due to an increase in utilities expenses, so the net income will be decreased.

Now, the Decrease in net income, there will be decrease in stockholders equity

2. The error should be reported for the year 2019 financial statements as a prior period adjustment. It is an adjustment to the beginning balance in the retained earning account

And it will be an addition of the $20,000