Joy Cunningham Co. purchased a machine on January 1, 2018, for $550,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2021, the firm's accountant found that the entry for depreciation expense had been omitted in 2019. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2021. At present, the company uses the sum-of-the-years'-digits method for depreciating equipment.'
Required:
(a) Prepare the general journal entries that should be made at December 31, 2021, to record these events. (Ignore tax effects.)

Answer and Explanation:

The Journal entry is shown below:-

1. Retained Earnings Dr. $90,000

        To Accumulated Depreciation - Machinery $90,000

(Being To correct for the omission of depreciation expense in 2019 is recorded)

2. Depreciation Dr, $40,000  

           To Accumulated Depreciation - Machinery $40,000

(Being depreciation expense for 2021)  

Working Note:-  

Amount of Depreciation In 2019 = $550000 × 9 ÷ 55

= $90000  

Cost Of machine                                        $550,000

Less: Depreciation Prior to 2021  

2012 - $55000 × 10 ÷ 55      $100,000  

2013 - $55000 × 9 ÷ 55        $90,000  

2014 - $55000 × 8 ÷ 55         $80,000     $270,000

Book Value as on 01.01.2021                     $280,000

Depreciation For the 2021 = $280,000 ÷ 7

= $40,000

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