In 2012, Bailey Corporation discovered that equipment purchased on January 1, 20
ID: 2379564 • Letter: I
Question
In 2012, Bailey Corporation discovered that equipment purchased on January 1, 2010, for $85,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Prepare Hiatt's 2012 journal entry to correct the error. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)
Description Debit Credit $ $ $ $ In 2012, Bailey Corporation discovered that equipment purchased on January 1, 2010, for $85,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Prepare Hiatt's 2012 journal entry to correct the error. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)Explanation / Answer
Given, the Asset purchased has been recorded as expense on 1st jan 2010
Hence entry is Purchases A/c Dr $85000
To Cash A/c $85000
Depreciation to be recorded till 2012 if recorded as Asset = (85000/5)x3 = 51000
Hence, journal entry to correct the error is as given below
Profit and loss adjustment A/c Dr $85000
To Purchases A/c $85000
Equipment A/C Dr $34000
Depreciation A/c Dr $51000
To Profit and loss Adjustment A/c $85000.
The tax rate is used to identify the change in net income if retained earnings is given.
hence,here we have given only rectification/correction entries.
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