In 2016, internal auditors discovered that PKE Displays, Inc., had debited an ex

Question

In 2016, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $350,000 cost of a machine purchased on January 1, 2013. The machine’s useful life was expected to be five years with no residual value. Straight-line depreciation is used by PKE.

Ignoring income taxes, prepare the journal entry PKE will use to correct the error. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

In 2016, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $350,000 cost of a machine purchased on January 1, 2013. The machine’s useful life was expected to be five years with no residual value. Straight-line depreciation is used by PKE.

Explanation / Answer

JOURNAL ENTRIES:

Fixed Asset A/C (Debit)                                  $350000

Expenses (Credit)                                                           $350000

As Expenses are debited wrongly previously . so reaverse entry is passed.

Calculation of depreciation ( 01/01/13 to 12/31/16)

350000 / 5 * 4 = 280000

Depreciation A/C(Debit)                                                $280000

Fixed Asset / Accumulated Depreciation (Credit)                        $280000

Depreciation is charged to asset.

Profit & Loss A/C (Debit)                                          $280000

Depreciation A/C(Credit)                                                          $280000

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