On January 1,20A,Johns Company purchased an asset that cost $10,000 (no estimated residual value,estimated useful life 8 years,straight-line depreciation is used).An error was made because the total cost amount was debited to an expense account for 20A and no depreciation on it was recorded.Pretax profit for 20A was $11,250.What was the correct pretax profit for 20A?
A)$12,000
B)$19,200
C)$20,000
D)$20,750

Question

Quizplus · Accepted Answer

The asset should have been capitalized and depreciated over 8 years. The annual depreciation is $1,250 ($10,000/8). The expense account was incorrectly debited by $10,000, so the pretax profit should be increased by $10,000 and decreased by $1,250 for depreciation, resulting in a correct pretax profit of $20,000 ($11,250 + $10,000 - $1,250).

On January 1,20A,Johns Company Purchased an Asset That Cost $10,000