At the end of 2017, Majors Furniture Company failed to accrue $61,000 of interest expense that accrued during the last five months of 2017 on bonds payable. The bonds mature in 2029. The discount on the bonds is amortized by the straight-line method. The following entry was recorded on February 1, 2018, when the semiannual interest was paid: Interest expense 73,200 Discount on bonds payable 1,200 Cash 72,000 Required: 1-a. Prepare any journal entry necessary to correct the error as well as the adjusting entry for 2018. (Ignore income taxes.) 1-b. Prepare journal entry that should have been recorded, if done correctly to start..

Explanation:

Correction of errors:

Interest expense is overstated by the extra interest amount and retained earnings is overstated by the same amount. So debit the retained earnings and credit the interest expense.

Dr Retained earnings 61,000

    Cr Interest expense 61,000

Adjusting entry:

Dr Interest expense 61,000

    Cr Discount on bonds payable 1,000

    Cr Interest payable 60,000

Supporting calculations:

Amount of interest payable for 5 months: 72,000*5/6 = 60,000

Discount on bonds payable = 1,200*5/6 = 1,000

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