In 2021, internal auditors discovered that PKE Displays, Inc. had debited an expense account for the...

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In 2021, internal auditors discovered that PKE Displays, Inc. had debited an expense account for the $356,000 cost of equipme

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Answer 1

Answer #1

1. Cumulative effect of error on Net income:

The cumulative effect is Depreciation not charged for 3 years ie 356000/5*3 = 213600

(The retained earnings is understated by 142400 at the end of 2020.)

2.

Rectification entry: before adjusting and closing entry. hence depreciation will be charged later.

31-12-2021	Equipment a/c Dr	142400
	To retained earnings a/c		142400

3. No journal entry is necessary as the asset will not have any value after 2019 ie considered already as expense.

(Please comment in case of any query regarding the solution)

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Answer 2

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