Question

In 2018, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $360,000 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.

Answer 1

Correct Entry
Date	Accoutn Tittle	Debit	Credit
01-01-2015	Machine	3,60,000.00
	Cash		3,60,000.00
	To Record Purchase of Machine
31-12-2015	Expense	72,000.00
	Accumulated Depreciation		72,000.00
	Depreciation entry Omitted
31-12-2016	Expense	72,000.00
	Accumulated Depreciation		72,000.00
	Depreciation entry Omitted
31-12-2017	Expense	72,000.00
	Accumulated Depreciation		72,000.00
	Depreciation entry Omitted
InCorrect Entry
Date	Account Tittle	Debit	Credit
01-01-2015	Expense	3,60,000.00
	Cash		3,60,000.00
	To Record Purchase of Machine
To Correct In Correct Entry
Date	Account Tittle	Debit	Credit
01-01-2018	Machine	3,60,000.00
	Accumulated Depreciation (72000*3)		2,16,000.00
	Retained Earning ( 360000-216000)		1,44,000.00
	To Correct Incorrect Entry

In 2020 , Machine value become nil hence, it's not required to recalculate expense and depreciation and adjustment for the same.