In fiscal 2010, Ioco Inc. (loco) purchased equipment for \($5,000,000\). The equipment was supposed to be depreciated over eight years on a straight-line basis. However, for some reason, it wasn’t. loco’s new controller discovered the error in late 2013. Retained earnings on December 31, 2012, Ioco’s last year-end, was $17,800,000.

Required:

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

What would retained earnings be on December 31, 2013 after the error had been corrected?

Explain why the error is corrected in this way.