Question

On July 1. 2011, a machine is purchased at a cost of $20,000. Before the 2011 books are closed you discover that an error caused by using an incorrect residual value resulted in depreciation for the year being $200 too high. To correct this error you will record a second adjusting entry for depreciation that will include

Answer 1

To correct the $200 overstatement in depreciation for a machine, a second adjusting entry should be made that reduces accumulated depreciation and increases retained earnings by $200 each.

Step-by-step explanation:

To correct the error in the depreciation of the machine, which resulted in depreciation being $200 too high, you would record a second adjusting entry. This entry would decrease the accumulated depreciation by $200 and increase the retained earnings or specific reserve account (depending on the company's accounting policy) by the same amount.

The correcting entry would typically look like this:

• Debit: Accumulated Depreciation - $200
• Credit: Retained Earnings (or appropriate reserve account) - $200

This entry effectively reverses part of the depreciation expense previously recorded, aligning the books with the correct residual value and ensuring that the asset's book value is accurately represented on the balance sheet at the end of the year.