Detailed Answer
(d) The entry Ritzcar should have made to accrue sales
commissions earned but unpaid at the end of its year 1 fiscal year
is
Commission expense xxx
Commissions payable xxx
Since Commissions payable is a current liability, the year 1 ending
working capital is overstated due to Ritzcar’s failure to record
this entry. Since this error was not repeated at the end of
Ritzcar’s year 2 fiscal year, the income impact of the year 1 error
“self-corrected†during year 2, when Ritzcar recorded both the
earned but unpaid year 1 commissions plus the year 2 earned
commissions. Therefore, the year 2 ending retained earnings
would not be impacted by the error.