The Love Company was organized on January 1, 2016, and since its inception has not recognized accruals

and
deferrals. Selected accounts revealed the following information.

Accruals and Deferrals

Not Recognized at Year- 2016 2017 2018
end
Prepaid expenses 29,000 30,000 34,000
Unearned revenues 20,000 28,000 15,000
Accrued expenses 27,500 25,000 27,000
Accrued revenues 42,500 45,000 41,000

Love Company reported the following profit (loss):

Year Profit (Loss)

2016 (120,000)
2017 100,000
2018 200,000

Required:
Compute the corrected profit for each of the years 2016, 2017, and 2018 and prepare audit adjusting entries to correct the
financial statements for the year ended December 31, 2018. Follow the format provided below:

Under(over)statement in Retained Earnings

Nature of Error 2018 Accounts Affected
Profit of 01/01/18
2016 2017 2018 Account Dr. Cr.

Required:
 Retained
2018
Under/(Over) Earnings
Nature of Error Accounts
statement in profit of
Affected
1/1/18

2016 2017 2018 Account Debit Credit

Omission of Prepaid
Expenses
12/31/2016 29,000 (29,000)
30,00
12/31/2017 30,000 (30,000) 30,000 Expenses
0
Prepaid 34,00
12/31/2018 34,000
Expenses 0
34,00
Expenses
0
Omission of Unearned
Revenue
12/31/2016 (20,000) 20,000
28,00
12/31/2017 (28,000) 28,000 (28,000) Revenue
0
15,00
12/31/2018 (15,000) Revenue
0
Unearned 15,00
Revenue 0
Omission of Accrued
Expenses
12/31/2016 (27,500) 27,500
25,00
12/31/2017 (25,000) 25,000 (25,000) Expenses
0
27,00
12/31/2018 (27,000) Expenses
0
Accrued 27,00
Expenses 0
Omission of Accrued
Revenues
12/31/2016 42,500 (42,500)
45,00
12/31/2017 45,000 (45,000) 45,000 Revenues
0
Accrued 41,00
12/31/2018 41,000
Revenues 0
41,00
Revenues
0
Net Under/(Over)
24,000 (2,000) 11,000 22,000
Statement
Reported Profit(loss) (120,000) 100,000 200,000
Corrected Profit(Loss) (96,000) 98,000 211,000
Requirement B: Audit ADJUSTING ENTRIES:

Account Debit Credit

1. Expenses 30,000
Prepaid Expenses 34,000

Retained Earnings 30,000

Expenses 34,000

2. Retained Earnings 28,000

Revenue 15,000

Revenues 28,000
Unearned Revenue 15,000

3. Retained Earnings 25,000

Expenses 27,000

Expenses 25,000
Accrued Expenses 27,000

4. Revenue 45,000
Accrued Revenue 41,000

Retained Earnings 45,000

Revenues 41,000