In 2016, management discovered that Dual Production had debited expense for the

Question

In 2016, management discovered that Dual Production had debited expense for the full cost of an asset purchased on January 1, 2013, at a cost of $36 million with no expected residual value. Its useful life was 5 years. Dual uses straight-line depreciation. The correcting entry, assuming the error was discovered in 2016 before preparation of the adjusting and closing entries, includes:

A debit to accumulated depreciation of $14.4 million.

A credit to accumulated depreciation of $21.6 million.

A credit to an asset of $36 million.

A debit to retained earnings of $14.4 million.

Explanation / Answer

The depriciation pa = 36 million / 5 = 7.20 million

3 years depriciation = 7.2 million * 3 = 21.6 million ( for 3 years)

Hence , the correcting entry would include

A Credit to accumulated depriciation of 21.6 million

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