Question

9. In 2018, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $368,000 cost of equipment purchased on January 1, 2015. The equipment 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.) (If no entry is required, select "No journal entry required" in the first account field.)

Record the correcting entry for errors discovered.

Event	General Journal	Debit	Credit
1

Assume the error was discovered in 2020 after the 2019 financial statements are issued. Prepare the correcting entry. (If no entry is required, select "No journal entry required" in the first account field.)

Event	General Journal	Debit	Credit

Answer 1

SOLUTION

Event	General Journal	Debit ($)	Credit ($)
1.	Equipment	368,000
	Accumulated depreciation* (368,000/5*3)		220,800
	Retained earnings		147,200
2.	No journal entry required

* Accumulated depreciation-

= Depreciation expense for 1 year * 3 years

= (368,000/5 years) * 3 years

= $220,800