In 2014,a company discovered that $20,000 of equipment purchased on January 1,2011,was expensed in full.The equipment has a ten-year life,no residual value,and should have been depreciated on the straight-line basis.The error is corrected.As a result,the comparative 2013 and 2014 financial statements will show what amounts as adjustments to the beginning balances of retained earnings dated: 1/1/2013 1/1/2014
A) $14,000 $14,000
B) $16,000 $0
C) $0 $14,000
D) $16,000 $14,000

Question

Quizplus · Accepted Answer

The error is corrected retroactively, which means that the financial statements for 2011 and 2012 will also need to be restated to reflect the correct depreciation expense.

To calculate the amount of depreciation expense that should have been recorded for the equipment, we can use the straight-line method:

Depreciation expense = (Cost - Residual value) / Useful life

In this case, the cost was $20,000, the residual value is 0, and the useful life is 10 years.

Depreciation expense = ($20,000 - $0) / 10 = $2,000 per year

So for the three years that have passed since the equipment was acquired, the total amount of depreciation that should have been recorded is:

2011: $2,000 
2012: $2,000 
2013: $2,000

Therefore, the cumulative adjustment to retained earnings on 1/1/2014 will be:

$2,000 + $2,000 + $2,000 = $6,000

The adjustment to retained earnings on 1/1/2013 will be the same as the adjustment to the beginning balance of retained earnings in 2013, which is:

$2,000 + $2,000 = $4,000

So the correct answer is D) $16,000 on 1/1/2014 and $14,000 on 1/1/2013.

In 2014,a Company Discovered That $20,000 of Equipment Purchased on January