In 2018, internal auditors discovered that Fay, Inc., had debited an expense account for the $700,000 cost of a machine purchased on January 1, 2015. The machine's useful life was expected to be five years with no residual value. Straight-line depreciation is used by Fay. The journal entry to correct the error will include a credit to accumulated depreciation of:
A) $140,000.
B) $280,000.
C) $420,000.
D) $700,000.

Question

Quizplus · Accepted Answer

During the three-year period, depreciation expense was understated by $420,000, but other expenses were overstated by $700,000, so net income during the period was understated by $280,000, which means retained earnings is currently understated by that amount.
During the three-year period, accumulated depreciation was understated, and continues to be understated by $420,000.
To correct incorrect accounts. 11ea937b_358b_b490_a419_c36cbfd59121_TB2599_00

In 2018, Internal Auditors Discovered That Fay, Inc