Question
George Young Industries (GYI) acquired industrial robots at the beginning of 2018 and added them to...
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 $2.7 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 | $ | 385,830 | |
| 2019 | 661,230 | ||
| 2020 | 472,230 | ||
| 2021 | 337,230 | ||
| 2022 | 241,110 | ||
| 2023 | 240,840 | ||
| 2024 | 241,110 | ||
| 2025 | 120,420 | ||
| Totals | $ | 2,700,000 | |
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.
- Record the correcting entry.
- Record the 2021 adjusting entry for depreciation.
2. Will GYI account for the change (a) retrospectively or (b) prospectively?
Will GYI account for the change (a) retrospectively or (b) prospectively?
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