In 2018, internal auditors discovered that PKE Displays, Inc., had debited an ex

Question

In 2018, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $356,000 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.

record the correcting entry for the errors discovered.

record the correcting entry for errors dicovered

Explanation / Answer

In part 2 no entry would be required as the machine was purchased in 2015 and 5 years have already passed.  

No. Account Debit Credit 1. Equipment $356,000 Acc Depreciation $ 213,600 Retained Earnings $ 142,400 (To correct the adjusting entry)

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