In December of 2021, XL Computer's internal auditors discovered that office equipment costing $800,000 was charged to expense in 2019. The asset had an expected life of 10 years with no residual value. XL would have recorded a half year of depreciation in 2019. Required:
Prepare the necessary correcting entry that would be made in 2016 (ignore income taxes), and the entry to record depreciation for 2021.

Answer and Explanation:

The Journal entries are shown below:-

1. Office equipment Dr, $800,000

            To Accumulated depreciation-equipment $120,000

            To Retained earnings $680,000

(Being office equipment is recorded)

Here we debited the office equipment as assets is increasing and we credited the accumulated depreciation-equipment as assets is decreasing and retained earning as stockholder is increasing.

2. Depreciation expenses Dr, $80,000

           To Accumulated depreciation-equipment $80,000

(Being depreciation expenses is recorded)

Here we debited the depreciation expenses as it increasing the expenses and we credited the accumulated depreciation-equipment as decreases the assets.

Working note

Depreciation

For 2019

= $800,000 ÷ 10 years

= $80,000 × 6 ÷ 12

= $40,000

For 2020

= $800,000 ÷ 10 years

= $80,000

Total = $40,000 + $80,000

= $120,000