In 2018, internal auditors discovered that PKE Displays, Inc., had debited an ex

Question

In 2018, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $359,000 cost of equipment purchased on January 1, 2015. The equipment’s life was expected to be five years with no residual value. Straight-line depreciation is used by PKE. Required: 1. Prepare the correcting entry assuming the error was discovered in 2018 before the adjusting and closing entries. (Ignore income taxes.) 2. Assume the error was discovered in 2020 after the 2019 financial statements are issued. Prepare the correcting entry.

Explanation / Answer

Depreciation = ($359000 - $0) / 5 years

= $71800

Accummulated depreciation = $215400 ($71800 * 3)

Correcting entry

Equipment $359000

To accummulated depreciation $215400

To retained earnings $143600.

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