Cherokee Company's Auditor Discovered Some Errors

question 101

Essay

Cherokee Company's auditor discovered some errors.No errors were corrected during 2015.The errors are described as follows:
(1. )Beginning inventory on January 1,2015,was understated by $5,000.
(2. )A two-year insurance policy purchased on April 30,2015,in the amount of $24,000 was debited to Prepaid Insurance.No adjustment was made on December 31,2015,or on December 31,2016.
Required:
Prepare appropriate journal entries (assume the 2016 books have not been closed).Ignore income taxes.

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Definitions:

Increasing Cost Industry

An industry in which production costs rise as output increases, often due to factors like limited resources or increased demand for inputs.

Price-taker Firm

A company in a market where the individual firm has no control over the price of its product and must accept the prevailing market price.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one additional unit of a good changes as the level of production is varied.

Supply Curve

A graph showing the relationship between the price of a good and the quantity of the good that suppliers are willing to offer for sale.