Question

In 2018, internal auditors discovered that Fay, Inc., had debited an expense account for the $4,600,000 cost of a machine purchased on January 1, 2015. The machine's useful life was expected to be 20 years with no residual value. Straight-line depreciation is used by Fay. The journal entry to correct the error will include a credit to accumulated depreciation of:_____.

Answer 1

Answer:

$230,000

Explanation:

Depreciation Charge (Straight line) = (Cost - Residual Value) ÷ Estimated Useful Life

therefore,

2018 Depreciation Charge = ($4,600,000 - $ 0) ÷ 20

                                               = $230,000

The journal entry to correct the error will include a credit to accumulated depreciation of $230,000