Cherokee Company's Auditor Discovered Some Errors

question 107

Essay

Cherokee Company's auditor discovered some errors. No errors were corrected during 2012. The errors are described as follows:
(1.) Beginning inventory on January 1, 2012, was understated by $5,000.
(2.) A two-year insurance policy purchased on April 30, 2012, in the amount of $24,000 was debited to Prepaid Insurance. No adjustment was made on December 31, 2012, or on December 31, 2013.
Required:
Prepare appropriate journal entries (assume the 2013 books have not been closed). Ignore income taxes.

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Definitions:

Aggregate Planning

A process in organizations to develop, analyze, and maintain a preliminary, approximate schedule of the overall operations.

Subcontracting

The act of assigning another company the responsibility to complete a portion of the work or services originally undertaken by oneself.

Overtime

Time worked beyond the standard hours set by a company policy or national regulation, often compensated at a higher pay rate.

Stockouts

Occurrences where items are not available for sale or use due to insufficient stock.