Question

In 2018, Internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $444,000 cost of a machine purchased on January 1, 2015. The machine's useful life was expected to be six years with no residual value. Straight-line depreciation is used by PKE. Ignoring income taxes, prepare the journal entry PKE will use to correct the error (If no entry is required for a transaction/event, select "No Journal entry required in the first account field.) No Event Credit General Journal Equipment Accumulated depreciation Retained earnings Debit 444,000 370,000 74,000

Answer 1

Ans.	Straight line depreciation (annual) = (Cost of asset - Residual value) / Useful life in years
		($444,000 - $0) / 6
		$74,000
	In 2018, the machine has already been used for 3 years (Jan. 2015 - Jan. 2018), so the
	depreciation for these 3 years would be calculated as follows:
	Accumulated depreciation (3 years)   =   $74,000 * 3   =   $222,000
	Journal Entry:
No.	Event	General Journal	Debit	Credit
1	1	Equipment	$444,000
		Accumulated depreciation		$222,000
		Retained earnings		$222,000
		(To record a correction in depreciation)
	*Equipment   =   Cost of machine
	*Retained earnings = Cost of machine - Accumulated derpeciation
	$444,000 - $222,000 = $222,000