George Young Industries (GYI) acquired industrial robots at the beginning of 201

Question

George Young Industries (GYI) acquired industrial robots at the beginning of 2013 and added them to the company’s assembly process. During 2016, management became aware that the $1.5 million cost of the machinery was inadvertently recorded as repair expense on GYI’s books and on its income tax return. The industrial robots have 10-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method for financial reporting purposes and for tax purposes it is considered to be MACRS 7-year property (cost deducted over 7 years by the modified accelerated recovery system as follows):

The tax rate is 40% for all years involved.

___________________________________________________

Required: Prepare any journal entry necessary as a direct result of the error described and the adjusting entry for 2016 depreciation.

1. Record the correcting entry.

2. Record the 2016 adjusting entry for depreciation.

  Year MACRS
Deductions   2013 $ 214,350   2014 367,350   2015 262,350   2016 187,350   2017 133,950   2018 133,800   2019 133,950   2020 66,900    Totals $ 1,500,000

Explanation / Answer

EXPLANATION:

As machine pcquired in 2013 with cost of 15,00,000 it required to be depriciated every year . according Straight line Depreciation method depriciated value for every year as follows

Straight-line depreciation expense is computed using this formula:

=(Depreciable Cost – Residual Value) /Estimated Useful Life

=(15,00,000-0)/10   (since no salvage value be remained at the end of the life time of the asset)

=15,0000

same process is supposed to be done next sub sequent years up to 2023 . But in 2016 company noted that sum of $15,00,000 inadvertently noted as repair expenses instead of machine value . and this value is taxed at 40%. the expense are overstated with 14,85,000 in stead of 15,000 in 2013. so we use retained earnings entry when we found mistake in prior accounting period..In the year 2016 the adustabe entry is follows

in addition the depreciation entry must be entered as follows

DATE PARTICULARS DEBIT CREDIT 2013 Depreciation $15,000         Accumulated Depreciation $15,000

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