Question

In 2020, Sheridan Corporation discovered that equipment purchased on January 1, 2018, for $62,000 was expensed...

In 2020, Sheridan Corporation discovered that equipment purchased on January 1, 2018, for $62,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Sheridan uses straight-line depreciation.

Prepare Sheridan’s 2020 journal entry to correct the error.

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Answer

Account Title

 Debit Credit
Equipment $     62,000
        Accumulated Depreciation $     24,800 62000*2/5
        Deferred Tax Liability $     11,160 (62000-24800)*30%
        Retained Earnings $     26,040
( To record journal entry now rectified
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