In 2016, internal auditors discovered that PKE Displays, Inc., had debited an ex

Question

In 2016, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $368,000 cost of a equipment purchased on January 1, 2013. The equipment’s life was expected to be five years with no residual value. Straight-line depreciation is used by PKE. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Required: 1. Prepare the appropriate correcting entry assuming the error was discovered in 2016 before the adjusting and closing entries. (Ignore income taxes.) 1. Record the correcting entry for error discovered 2. Assume the error was discovered in 2018 after the 2017 financial statements are issued. Prepare the appropriate correcting entry.

Explanation / Answer

Answer 1 Correcting Journal Entry in 2016 before adjusting and closing entries Date Account Title Debit Credit Equipment 368000 Accumulated depreciation 220800 Retained Earnings 147200 Answer 2 Correcting Journal Entry in 2018 before adjusting and closing entries Date Account Title Debit Credit No Journal entry required (equipment useful life was 5 years and in 2017 it was fully depreciated) Working Depreciation under staright line method = 368000 / 5 = $73600 per year Depreciation schedule Year Depreciation Accumulated depreciation 2013 73600 73600 2014 73600 147200 2015 73600 220800 2016 73600 294400 2017 73600 368000

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