George Young Industries (GYI) acquired industrial robots at the beginning of 2018 and added them to the company’s assembly process. During 2021, management became aware that the $2.8 million cost of the equipment was inadvertently recorded as repair expense on GYI’s books and on its income tax return. The industrial robots have 10-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method for financial reporting purposes and for tax purposes it is considered to be MACRS 7-year property. Cost deducted over 7 years by the modified accelerated recovery system as follows: Year MACRS Deductions 2018 $ 400,120 2019 685,720 2020 489,720 2021 349,720 2022 250,040 2023 249,760 2024 250,040 2025 124,880 Totals $ 2,800,000 The tax rate is 25% for all years involved. Required: 1. & 3. Prepare any journal entry necessary as a direct result of the error described and the adjusting entry for 2021 depreciation. 2. Will GYI account for the change (a) retrospectively or (b) prospectively? Record the correcting entry. Record the 2021 adjusting entry for depreciation
George Young Industries (GYI) acquired industrial robots at the beginning of 2018 and added them to the company’s assembly process. During 2021, management became aware that the $2.8 million cost of the equipment was inadvertently recorded as repair expense on GYI’s books and on its income tax return. The industrial robots have 10-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method for financial reporting purposes and for tax purposes it is considered to be MACRS 7-year property. Cost deducted over 7 years by the modified accelerated recovery system as follows: Year MACRS Deductions 2018 $ 400,120 2019 685,720 2020 489,720 2021 349,720 2022 250,040 2023 249,760 2024 250,040 2025 124,880 Totals $ 2,800,000 The tax rate is 25% for all years involved. Required: 1. & 3. Prepare any journal entry necessary as a direct result of the error described and the adjusting entry for 2021 depreciation. 2. Will GYI account for the change (a) retrospectively or (b) prospectively? Record the correcting entry. Record the 2021 adjusting entry for depreciation
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
Chapter18: Accounting For Income Taxes
Section: Chapter Questions
Problem 5MC: At the beginning of 2019, Conley Company purchased an asset at a cost of 10,000. For financial...
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George Young Industries (GYI) acquired industrial robots at the beginning of 2018 and added them to the company’s assembly process. During 2021, management became aware that the $2.8 million cost of the equipment was inadvertently recorded as repair expense on GYI’s books and on its income tax return. The industrial robots have 10-year useful lives and no material salvage value. This class of equipment is
| Year | MACRS Deductions |
||
| 2018 | $ | 400,120 | |
| 2019 | 685,720 | ||
| 2020 | 489,720 | ||
| 2021 | 349,720 | ||
| 2022 | 250,040 | ||
| 2023 | 249,760 | ||
| 2024 | 250,040 | ||
| 2025 | 124,880 | ||
| Totals | $ | 2,800,000 | |
The tax rate is 25% for all years involved.
Required:
1. & 3. Prepare any
2. Will GYI account for the change (a) retrospectively or (b) prospectively?
- Record the correcting entry.
- Record the 2021 adjusting entry for depreciation
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