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4 December, 04:14

In December of 2021, XL Computer's internal auditors discovered that office equipment costing $800,000 was charged to expense in 2019. The asset had an expected life of 10 years with no residual value. XL would have recorded a half year of depreciation in 2019.

Required:

Prepare the necessary correcting entry that would be made in 2016 (ignore income taxes), and the entry to record depreciation for 2021.

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Answers (1)
  1. 4 December, 06:35
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    Answer and Explanation:

    The Journal entries are shown below:-

    1. Office equipment Dr, $800,000

    To Accumulated depreciation-equipment $120,000

    To Retained earnings $680,000

    (Being office equipment is recorded)

    Here we debited the office equipment as assets is increasing and we credited the accumulated depreciation-equipment as assets is decreasing and retained earning as stockholder is increasing.

    2. Depreciation expenses Dr, $80,000

    To Accumulated depreciation-equipment $80,000

    (Being depreciation expenses is recorded)

    Here we debited the depreciation expenses as it increasing the expenses and we credited the accumulated depreciation-equipment as decreases the assets.

    Working note

    Depreciation

    For 2019

    = $800,000 : 10 years

    = $80,000 * 6 : 12

    = $40,000

    For 2020

    = $800,000 : 10 years

    = $80,000

    Total = $40,000 + $80,000

    = $120,000
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