Cullumber Company discovered an error while preparing its 2025 financial statements. A building constructed at the beginning of 2024 costing $1230000 has not been depreciated. The estimated useful life of the building is 30 years with no salvage value. Straight-line depreciation is used. Cullumber properly included depreciation on its return also using straight-line depreciation. Income tax payable was also reported correctly at a tax rate of 20%. Income before depreciation expense in 2025 was $330000. What is the appropriate journal entry to record the prior period adjustment? Retained Earnings Deferred Tax Liability Accumulated Depreciation Retained Earnings Accumulated Depreciation Retained Earnings Deferred Tax Asset Accumulated Depreciation 41000 41000 32800 8200 8200 32800 41000 41000

Cullumber Company discovered an error while preparing its 2025 financial statements. A building constructed at the beginning of 2024 costing $1230000 has not been depreciated. The estimated useful life of the building is 30 years with no salvage value. Straight-line depreciation is used. Cullumber properly included depreciation on its return also using straight-line depreciation. Income tax payable was also reported correctly at a tax rate of 20%. Income before depreciation expense in 2025 was $330000. What is the appropriate journal entry to record the prior period adjustment? Retained Earnings Deferred Tax Liability Accumulated Depreciation Retained Earnings Accumulated Depreciation Retained Earnings Deferred Tax Asset Accumulated Depreciation 41000 41000 32800 8200 8200 32800 41000 41000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In 2024, it was discovered that Brandon Irons Metal works had debited expense for the full cost of an asset purchased on January 1, 2021. The cost was $12 million with no expected residual value. Its useful life was 5 years and straight-line depreciation is used by the company. The correcting entry assuming the error was discovered in 2024 before the adjusting and closing entries includes:
Popeye Company purchased a machine for $350,000 on January 1, 2020. Popeye depreciates machines of this type by the straight-line method over a five-year period using no salvage value. Due to an error, no depreciation was taken on this machine in 2020. Popeye discovered the error in 2021. What amount should Popeye record as depreciation expense for 2021? The tax rate is 25%. O O O O $105,000. $52,500. $70,000. $140,000.
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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 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.
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