Question

purchased decorating machine for $430,000 on January 1, 2020. depreciates machines of this type by the straight-line method over a five-year period using no salvage value. Due to an error, no depreciation was taken on this machine in 2020. Fireworks discovered the error on January 1, 2021. The journal entry to correct this error would be:

Answer 1

Answer:

The journal entry to correct this error would be:

Debit : Retained Earnings $86,000

Credit : Machine $86,000

Explanation:

Straight line method charges a fixed amount of depreciation using the formula :

Depreciation expense = (Cost - Residual Value) ÷ Estimated useful life

thus,

Annual Depreciation expense = $430,000 ÷ 5

                                                   = $86,000

To correct the error :

Reduce the Retained Earnings amount (were depreciation expense lies) and Reduce the Asset Balance (a fall in value) with the amount of depreciation.