Equipment was purchased on January 2, 2017, for $24,000,but no portion of the cost has been charged to depreciation.The corporation wishes to use the straight-linemethod for these assets, which have been estimated tohave a life of 10 years and no salvage value. What effectdoes this error have on net income in 2017? What entry isnecessary to correct for this error, assuming that the booksare not closed for 2017?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Equipment was purchased on January 2, 2017, for $24,000,
but no portion of the cost has been charged to depreciation.
The corporation wishes to use the straight-line
method for these assets, which have been estimated to
have a life of 10 years and no salvage value. What effect
does this error have on net income in 2017? What entry is
necessary to correct for this error, assuming that the books
are not closed for 2017?
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