(Correction of an accounting error, LO 3) In fiscal 2004 Upshall Ltd. (Upshall)

purchased land for $500,000. For some reason, the land was amortized over 10 years on a straight-line basis. A new employee in the accounting department who was asked to review the company’s capital assets discovered the error in 2006.

Retained earnings on December 31, 2005, Upshall’s last year end, was $4,100,000.

Required:

Prepare the journal entry that must be made in Upshall’s books to correct the error.

What would retained earnings be on December 31, 2005 after the error had been corrected? Explain why the error is corrected in this way.