Question

In 2018, management discovered that Dual Production had debited expense for the full cost of an asset purchased on January 1, 2015, at a cost of $36 million with no expected residual value. Its useful life was 5 years. Dual uses straight-line depreciation. The correcting entry, assuming the error was discovered in 2018 before preparation of the adjusting and closing entries, includes:

(A) A debit to accumulated depreciation of $14.4 million.
(B) A credit to accumulated depreciation of $21.6 million.
(C) A credit to an asset of $36 million.
(D) A debit to retained earnings of $14.4 million.

Answer 1

Answer:

correct option is (B) A credit to accumulated depreciation of $21.6 million

Explanation:

given data

cost of an asset purchased  = $36 million

useful life = 5 years

to find out

closing entries is

solution

we get here first depreciation per annual that is

depreciation per annual =  $\frac{36}{5}$

depreciation per annual = 7.20 million

and

depreciation for 3 year ( 2015 to  2018 )  will be

depreciation for 3 year = 7.2 million ×  3

depreciation for 3 year = 21.6 million

so the correcting entry would include  

correct option is (B) A credit to accumulated depreciation of $21.6 million