Accounting Error In reviewing the account balances just before preparing financial statements for 2002, the financial vice president of Castaway Company discovered that $64,000 of equipment purchased on June 30, 2000, had been improperly charged to maintenance expense at the time of delivery. The equipment has an estimated useful life of 8 years with no residual value. Castaway Company uses straight-line depreciation. The balances reported for selected items for 2000, 2001, and 2002 are as follows:

Required:

a. For each of the items listed, show the corrected amount that would appear in the financial statements included in Castaway’s 2002 annual report. Castaway includes financial statements for the current year and comparative statements for the 2 preceding years in its annual report. Ignore income taxes.

b. Give the journal entry that should be recorded on December 31, 2002, to correct Castaway’s account balances.

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Depreciation expense Maintenance expense Net income Retained earnings $ 50,000 $60,000 2000 2001 2002 $70,000 94,000 45,000 52,000 70,000 90,000 100,000 240,000 280,000 340,000