In 2021, internal auditors discovered that PKE Displays, Inc.
had debited an expense account for the $362,000 cost of equipment
purchased on January 1, 2018. The equipment’s life was expected to
be five years with no residual value. Straight-line depreciation is
used by PKE.
Required:
1. Determine the cumulative effect of the error on
net income over the three-year period from 2018 through 2020, and
on retained earnings by the end of 2020.
2. Prepare the correcting entry assuming the error
was discovered in 2021 before the adjusting and closing entries.
(Ignore income taxes.)
3. Assume instead that the equipment was disposed
of in 2022 and the original error was discovered in 2023 after the
2022 financial statements were issued. Prepare the correcting entry
in 2023.
Determine the cumulative effect of the error on net income over the three-year period from 2018 through 2020, and on retained earnings by the end of 2020.
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Journal entry worksheet
Note: Enter debits before credits.
|
Journal entry worksheet
Note: Enter debits before credits.
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Part 1
During 2018 to 2020 year end (three year period), depreciation expense has been understated by $217200 ($72400*3 yrs) but other expenses was overstated by $362,000, so net income during the period was understated by 144800 ($362000 - $217200)
Net income over the period 2018 through 2020 is | understated | by = 144800 | |
Retained earnings by the end of 2020 is | understated | by =144800 |
Part 2
Debit | Credit | |
Asset | 362000 | |
Accumulated Depreciation | 217200 | |
Retained Earnings | 144800 | |
( Correcting entry for the errors discovered) |
Part 3
No entry will be required as asset has been disposed off and net effect of the above error would have been nil.
In 2021, internal auditors discovered that PKE Displays, Inc. had debited an expense account for the...
In 2021, internal auditors discovered that PKE Displays, Inc. had debited an expense account for the $369,000 cost of equipment purchased on January 1, 2018. The equipment's life was expected to be five years with no residual value. Straight-line depreciation is used by PKE Required: 1. Determine the cumulative effect of the error on net income over the three-year period from 2018 through 2020, and on retained earnings by the end of 2020. 2. Prepare the correcting entry assuming the...
In 2021, internal auditors discovered that PKE Displays, Inc. had debited an expense account for the $357,000 cost of equipment purchased on January 1, 2018. The equipment’s life was expected to be five years with no residual value. Straight-line depreciation is used by PKE. Required: 1. Determine the cumulative effect of the error on net income over the three-year period from 2018 through 2020, and on retained earnings by the end of 2020. 2. Prepare the correcting entry assuming the...
In 2021, internal auditors discovered that PKE Displays, Inc. had debited an expense account for the $356,000 cost of equipment purchased on January 1, 2018. The equipment's life was expected to be five years with no residual value. Straight-line depreciation is used by PKE. Required: 1. Determine the cumulative effect of the error on net income over the three-year period from 2018 through 2020, and on retained earnings by the end of 2020. 2. Prepare the correcting entry assuming the...
n 2021, internal auditors discovered that PKE Displays, Inc. had debited an expense account for the $357,000 cost of equipment purchased on January 1, 2018. The equipment’s life was expected to be five years with no residual value. Straight-line depreciation is used by PKE. Required: 1. Determine the cumulative effect of the error on net income over the three-year period from 2018 through 2020, and on retained earnings by the end of 2020. 2. Prepare the correcting entry assuming the...
In 2021, internal auditors discovered that PKE Displays, Inc. had debited an expense account for the $369,000 cost of equipment purchased on January 1, 2018. The equipment’s life was expected to be five years with no residual value. Straight-line depreciation is used by PKE. Required:1. Determine the cumulative effect of the error on net income over the three-year period from 2018 through 2020, and on retained earnings by the end of 2020.2. Prepare the correcting entry assuming the error was...
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