Answer:
Honda Inc.
Journal
To correct the error:
Debit Retained Earnings $21,600
Credit Accumulated Depreciation $21,600
To record the correction of depreciation error.
For the current year:
Debit Depreciation Expense $31,200
Credit Accumulated Depreciation $31,200
To record the depreciation expense for the year.
Explanation:
a) Data and Calculations:
January 1, 2018 Purchase of Equipment at a cost = $320,000
Estimated salvage value = $8,000
Recorded salvage value = $80,000
Estimated useful life = 10 years
Annual depreciation expense based on recorded salvage value = ($320,000 - 80,000)/10 = $24,000
Accumulated depreciation for 3 years (2018 to 2020) = $72,000 ($24,000 * 3 years)
Correct annual depreciation expense = ($320,000 - 8,000)/10 = $31,200
This means that depreciation expense was being understated annually by $7,200 ($31,200 - $24,000).
