The Laura Company Has the Following Errors on Its Books

question 33

Essay

The Laura Company has the following errors on its books as of December 31, 2015. The books for 2015 have not yet been closed.
a.In 2015, fully depreciated equipment (with no residual value) that originally cost $8,000 was sold for $700 as scrap. The company credited the $700 proceeds to Equipment.
b.On January 1, 2014, the company recorded the purchase of equipment in exchange for a three-year, noninterest-bearing note payable in the amount of $10,000. Interest rates were then 8%, but no recognition was made of this fact. The present value of $1 at 8% for three periods is 0.7938. (Ignore depreciation.)
Required:
Prepare journal entries to correct these errors at December 31, 2015. Ignore income taxes.

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Definitions:

Slope

The measure of the steepness or incline of a line, indicating the rate at which y values change with respect to x values.

Budget Line

A chart that displays every possible mix of two commodities that could be bought, given a particular financial plan, with unchanging prices.

Price Ratio

The ratio expressing the relative prices of two goods or services, indicating how much of one is needed to trade for one unit of the other.

Marginal Rate

Refers to the rate at which one quantity changes with respect to a change in another quantity, commonly used in the context of taxes and interest rates.