On January 1, 2017, Sarah Company purchased for $60,000 a truck that had an estimated life of five years and no residual value at the end of its useful life. Sarah uses straight-line depreciation. The cost of the truck was charged to Repairs Expense when purchased in 2017. Required: a. Ignoring income taxes, prepare the journal entry to correct the error if it was discovered and corrected on January 1, 2020 (Sarah's year ends on December 31). b. When preparing the 2020 financial statements, how much depreciation expense should be reported on the comparative 2018 and 2019 income statements?
On January 1, 2017, Sarah Company purchased for $60,000 a truck that had an estimated life of five years and no residual value at the end of its useful life. Sarah uses straight-line depreciation. The cost of the truck was charged to Repairs Expense when purchased in 2017. Required: a. Ignoring income taxes, prepare the journal entry to correct the error if it was discovered and corrected on January 1, 2020 (Sarah's year ends on December 31). b. When preparing the 2020 financial statements, how much depreciation expense should be reported on the comparative 2018 and 2019 income statements?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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.
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On January 1, 2017, Sarah Company purchased for $60,000 a truck that had an estimated life of five years and no residual value at the end of its useful life. Sarah uses straight-line depreciation . The cost of the truck was charged to Repairs Expense when purchased in 2017.
Required:
| a. | Ignoring income taxes, prepare the |
| b. | When preparing the 2020 financial statements, how much depreciation expense should be reported on the comparative 2018 and 2019 income statements? |
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