In
2012, Dody Corporation discovered that equipment purchased on January 1, 2010,
for $75,000 was expensed in error at that time. The equipment should have been
depreciated over five years, with no residual value. The tax rate is 32%.
Prepare Dody’s 2012 journal entry to correct the error and record 2012
depreciation.
Equipment................................ 75,000
Depreciation Expense ($75,000 ÷ 5)....... 15,000
Accumulated
Depreciation............. 45,000 *
Future
Income Tax Liability.......... 14,400 **
Retained
Earnings.................... 30,600 ***
* $75,000 ÷ 5 X 3
years = $45,000
** ($75,000 – $30,000)
X 32% = $14,400
*** ($75,000 –
$30,000) X (1 – 32%) = $30,600
Assumes income was reported accurately for tax
purposes in all years.
