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28 May, 14:30

In 2022, internal auditors discovered that Axel Corp., had debited an expense account for the $2,090,000 cost of a machine purchased on January 1, 2019. The machine's useful life was expected to be 11 years with no residual value. Straight-line depreciation is used by Axel. The journal entry to correct the error will include a credit to accumulated depreciation of:

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  1. 28 May, 18:16
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    Debit Depreciation expense $570,000

    Credit Accumulated depreciation $570,000

    (To record the accumulated depreciation for 3 years)

    Explanation:

    Using a Straight-line depreciation method, depreciation expense = (Cost - Salvage value) / Estimated useful life

    Depreciation expense = $2,090,000 / 11 years = $190,000 yearly

    We would assume that the internal auditors detected the error at the beginning of Year 2022, so the accumulated depreciation for 3 years (Jan 2019 - Dec 2021) would be $190,000 x 3 years = $570,000

    The following correctional entries will apply:

    Debit Fixed asset - Machine $2,090,000

    Credit Expense account $2,090,000

    (To appropriately record the purchase of machine)

    The required adjustment fot the accumulated depreciation is recorded above under the answer section.
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