Brlef Exercise 22-06In 2020, Kingbird Corporation discovered that equipment purchased on January 1, 2018, for $57,000 was expensed at that time. The equipment should have been depreciated over 5years, with no salvage value. The effective tax rate is 30%. Kingbird uses straight-line depreciation.Prepare Kingbird's 2020 journal entry to correct the error. (CrediIt account titles are automatically Indented when amount Is entered. Do not Indent manually. If no entry Isrequired, select "No Entry" for the account titles and enter0 for the amounts.)Account Titles and ExplanationDebitCredit

Answered: Brief Exercise 22-06 In 2020, Kingbird…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 8MC: On July 1, 2018, Mundo Corporation purchased factory equipment for 50,000. Residual value was...

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Brlef Exercise 22-06
In 2020, Kingbird Corporation discovered that equipment purchased on January 1, 2018, for $57,000 was expensed at that time. The equipment should have been depreciated over 5
years, with no salvage value. The effective tax rate is 30%. Kingbird uses straight-line depreciation.
Prepare Kingbird's 2020 journal entry to correct the error. (CrediIt account titles are automatically Indented when amount Is entered. Do not Indent manually. If no entry Is
required, select "No Entry" for the account titles and enter0 for the amounts.)
Account Titles and Explanation
Debit
Credit

Expert Solution

Step 1

From 2018 to 2020, Equipment has been used for 2 years.

In 2018, Equipment was expensed for 57,000 but now it should have been expensed for only $22,800 (2-year depreciation).

The overcharged expense also leads to less tax which was $17,100 (57,000*30%). Now tax liability occurs for 3 years life left for the equipment, ie $10,260 (17,100 * 3/5).

The balance would go the Retained Earnings, (it is a difference of increase in income as an expense of equipment has been reduced and decrease in income as expense of tax has been increased).

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