Question
On January 1, 2018, Maxi Corp. bought equipment for $40,000. The bookkeeper erroneously recorded this equipment as a debit to repairs & maintenance expense. No
On January 1, 2018, Maxi Corp. bought equipment for $40,000. The bookkeeper erroneously recorded this equipment as a debit to repairs & maintenance expense. No depreciation had been recorded in 2018. You are the new accountant for this business and you are in the process of preparing the 2019 financial statements when you notice that the $40,000 expenditure for equipment was recorded incorrectly as an expense and that depreciation had not been recorded last year. Depreciation should be recorded for this equipment using the straight-line method with an assumed salvage value of $0 and an estimated useful life of five years. The tax rate is 40%.
The unadjusted balance in retained earnings at January 1, 2019 was $800,000. The company had a net income after tax of $60,000 and paid dividends of $10,000 during 2019.
Required:
- Calculate the earnings correction that Maxi must show in the 2019 financial statements.
b) Prepare the 2019 entry to record the correction of the 2018 error.
| General Journal | |||
| Date | Account Titles and Explanation | Debit | Credit |
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c) Present the retained earnings reconciliation that would appear on Maxi Corps statement of changes in equity.
| Maxi Corp. | ||
| Statement of Retained Earnings | ||
| For the year ending December 31, 2019 | ||
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