During 20X4 Laplante Manufacturing Company discovered that in 20X3 they had neglected to record depreciation expense of $12,500 on certain machinery. What journal entry would they make in 20X4? (ignore income tax effects)
a)
$\begin{array} { l l r r } & \text { Office equipment } & 12,500 & \
& \text { Accumulated depreciation } & & 12,500 \\end{array}$
b)
$\begin{array} { l l r r } & \text { Retained earnings } & 12,500 \
& \text { Accumulated depreciation } && 12,500 & \\end{array}$
c)
$\begin{array} { l l r r } & \text { Depreciation expense } & 12,500 \
& \text { Accumulated depreciation } && 12,500 & \\end{array}$
d)
$\begin{array} { l l r r } & \text { Accumulated depreciation } & & 12,500 \
& \text { Retained earnings } & &&12,500 \\end{array}$

Question

During 20X4 Laplante Manufacturing Company discovered that in 20X3 they had neglected to record depreciation expense of $12,500 on certain machinery. What journal entry would they make in 20X4? (ignore income tax effects) 
a)
$\begin{array} {  l  l  r  r  } & \text { Office equipment } & 12,500 & \
 & \text { Accumulated depreciation } & & 12,500 \\end{array}$
b)
$\begin{array} {  l  l  r  r  } & \text { Retained earnings } & 12,500  \
 & \text { Accumulated depreciation } && 12,500 & \\end{array}$
c)
$\begin{array} {  l  l  r  r  } & \text { Depreciation expense } &  12,500 \
& \text { Accumulated depreciation } && 12,500 & \\end{array}$
d)
$\begin{array} {  l  l  r  r  } & \text { Accumulated depreciation } & & 12,500 \
 & \text { Retained earnings } & &&12,500 \\end{array}$

Quizplus · Accepted Answer

When a company discovers it neglected to record depreciation in a prior year, the correction is made by adjusting retained earnings, not by recording depreciation expense in the current year. This is because the error pertains to a prior period and affects the beginning balance of retained earnings in the current year.