In 2017, Waterway Corporation discovered that equipment purchased on January 1,

Question

In 2017, Waterway Corporation discovered that equipment purchased on January 1, 2015, for $42,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Waterway uses straight-line depreciation Prepare Waterway's 2017 journal entry to correct the error. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit

Explanation / Answer

Answer:

Annual depreciation = (Cost of Equipment - Salvage Value) / Number of years useful life

Annual depreciation = 42000 / 5

Annual depreciation = $8400

Calculations:

Depreciation expenses for 2013 & 14: 8400 + 8400 = $16800

But actual amount expensed = $42000

Extra expense: 42000 - 16800 = $25200

Claimed Tax benefit: 30000 * 30% = $9000

Retained earnings: 25200- 9000 = $16200

Journal entries in 2017 for correcting accounting errors:

In 2017; Depreciation entry

Particulars Debit Credit Equipment account 42000 Accumulated depreciation 16800 Retained earnings 16200 Income tax payable 9000

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