Question

In 2016, management discovered that Dual Production had debited expense for the full cost of an asset purchased on January 1, 2013, 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 2016 before preparation of the adjusting and closing entries, includes:

A debit to accumulated depreciation of $14.4 million.

A credit to accumulated depreciation of $21.6 million.

A credit to an asset of $36 million.

A debit to retained earnings of $14.4 million.

Answer 1

A credit to accumulated depreciation of $21.6 million.

Step-by-step explanation:

The computation of the depreciation expense is shown below:

= (Purchase of an assets - residual value) ÷ (useful life)

= ($36 million - $0) ÷ (5 years)

= $7.2 million

So accumulated deprecation for 3 years is i.e from 2013 to 2016 is

= $7.2 million × 3 years

= $21.6 million

And, the same is credited

Hence, the second options is correct