Cherokee Company's Auditor Discovered Some Errors

question 118

Essay

Cherokee Company's auditor discovered some errors. No errors were corrected during 2017. The errors are described as follows:
(1.) Beginning inventory on January 1, 2017, was understated by $5,000.
(2.) A two-year insurance policy purchased on April 30, 2017, in the amount of $24,000 was debited to Prepaid Insurance. No adjustment was made on December 31, 2017, or on December 31, 2018.
Required:
Prepare appropriate journal entries (assume the 2018 books have not been closed). Ignore income taxes.

Compare the direct write-off method and the allowance method for accounting for uncollectible receivables.

Grasp the impact of different accounting methods on the financial statements and company's income.

Understand the calculation and importance of net realizable value of receivables.

Learn the accounting treatments for the reinstatement of previously written-off accounts.

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Definitions:

Mood Disorders

Psychiatric disorders that are primarily characterized by changes in mood, such as depression and bipolar disorder, affecting daily functioning.

Behavior Therapy

A type of psychotherapy that aims to modify negative behaviors and emotional responses through reinforcement strategies and conditioning.

Functional Analysis

A method used in behavioral psychology to identify the antecedents and consequences of a behavior in order to understand its purpose or function.

Suicide

The deliberate act of taking one's own life.