In 2018, management discovered that Dual Production had debited expense for the full cost of an asset purchased on January 1, 2015, at a cost of $36 million with no expected residual value. Its useful life was 5 years. Dual uses straight-line depreciation. The correcting entry, assuming the error was discovered in 2018 before preparation of the adjusting and closing entries, includes:
A) A debit to accumulated depreciation of $14.4 million.
B) A credit to accumulated depreciation of $21.6 million.
C) A credit to an asset of $36 million.
D) A debit to retained earnings of $14.4 million.

Question

Quizplus · Accepted Answer

Accumulated depreciation would be credited for three year's depreciation (2015 to 2017) at $7.2 million per year. Depreciation for 2018 will be accounted for normally. In addition, an asset account would be debited for $36 million and retained earnings would be credited for $14.4 million.

In 2018, Management Discovered That Dual Production Had Debited Expense