Question

Sandhill Co. purchased machinery that cost $2800000 on January 4, 2019. The entire cost was recorded as an expense. The machinery has a 9-year life and a $180000 residual value. The error was discovered on December 20, 2021. Ignore income tax considerations.
Before the correction was made, and before the books were closed on December 31, 2013, retained earnings was understated by:____.

Answer 1

Answer:

$2,217,777.78

Explanation:

The computation is shown below:

The accumulated depreciation amount till 31 Dec 2013

= ($2,800,000 - $180,000) ÷ 9 × 2

= $582,222.22

Now the expenses recorded as the purchase is $2,800,000

so,  

The Retained earnings understated by

= $2,800,000 - $582,222.22

= $2,217,777.78