At the beginning of 2021, Westglow Company purchased equipment for $525,000 that was assigned an estimated useful life of 5 years and an estimated salvage value of $50,000. The company uses straight-line depreciation for all of its plant and equipment. When preparing adjusting entries at December 31, 2024, it was discovered that the bookkeeper had failed to deduct the salvage value in computing the depreciation base for 2021, 2022, and 2023. Westglow issues 2-year comparative financial statements. Which of the following statements describes the procedure that should be followed at December 31, 2024? Answer a. Westglow should compute the amount of annual depreciation expense that should have been recorded for 2023 and adjust accumulated depreciation and depreciation expense for the difference. The financial statements for 2023 should be restated and the effect of the error should be reported as an adjustment to the beginning balance of retained earnings for 2024. b. Westglow should revise depreciation at December 31, 2024 using the book value at that date, the salvage value, and the remaining useful life. The revised amount should be recorded as depreciation expense for 2024. The change should be reported in current and prospective periods. c. Westglow should compute the amount of annual depreciation expense that should have been recorded and adjust accumulated depreciation and retained earnings for the difference with regard to 2021, 2022, and 2023. The financial statements for 2023 should be restated and the effect of the error should be reported as an adjustment to the beginning balance of retained earnings for 2023. d. Westglow should compute the amount of annual depreciation expense that should have been recorded for 2023 and 2024 and adjust accumulated depreciation and retained earnings for the difference. The financial statements for 2023 should be restated and the effect of the error should be reported as an adjustment to the beginning balance of retained earnings for 2024.
At the beginning of 2021, Westglow Company purchased equipment for $525,000 that was assigned an estimated useful life of 5 years and an estimated salvage value of $50,000. The company uses straight-line
Answer
Westglow should compute the amount of annual depreciation expense that should have been recorded for 2023 and adjust
Westglow should revise depreciation at December 31, 2024 using the book value at that date, the salvage value, and the remaining useful life. The revised amount should be recorded as depreciation expense for 2024. The change should be reported in current and prospective periods.
Westglow should compute the amount of annual depreciation expense that should have been recorded and adjust accumulated depreciation and retained earnings for the difference with regard to 2021, 2022, and 2023. The financial statements for 2023 should be restated and the effect of the error should be reported as an adjustment to the beginning balance of retained earnings for 2023.
Westglow should compute the amount of annual depreciation expense that should have been recorded for 2023 and 2024 and adjust accumulated depreciation and retained earnings for the difference. The financial statements for 2023 should be restated and the effect of the error should be reported as an adjustment to the beginning balance of retained earnings for 2024.
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