On May 3, it was discovered that the following errors took place in journalizing and posting transactions: a. Insurance of $16,000 paid for the current year was recorded as a debit to Insurance Expense and a credit to Prepaid Insurance. b. A withdrawal of $9,600 by Brian Phillips, owner of the business, was recorded as a debit to Wages Expense and a credit to Cash. Journalize the entries on May 3 to correct the errors. Use two entries to correct the error described in a. (That is, record an entry to reverse the incorrect entry and a second entry to record the correct entry.) Refer to the Chart of Accounts for exact wording of account titles. Journalize the entries on May 3 to correct the errors. Use two entries to correct the error described in a. (That is, record an entry to reverse the incorrect entry and a second entry to record the correct entry.) Refer to the Chart of Accounts for exact wording of account titles.

Journal Entries on May 3:

a. Debit Prepaid Insurance $16,000

Credit Insurance Expense $16,000

To reverse the error.

Debit Insurance Expense $16,000

Credit Cash Account $16,000

To correct the error.

b. Debit Drawings $9,600

Credit Wages Expense $9,600

To correct the error.

Explanation:

a) Data:

1. Insurance expense credited to Prepaid Insurance, instead of Cash account = $16,000

2. Drawings by Brian Phillips, the owner of the business recorded as Wages Expense.

b) The journal can also be used to correct errors in posting transactions.  The process can involve first reversing the error and then correcting it, as done with case (a).  This will involve using two entries.  It can also involve simply involve correcting the error without reversion, as done with case (b).

d, conspicuous consumption is when you try to increase your wealth or social status (and in the case he's trying to create the perception of wealth considering he can't really afford it)