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?
Homework Answers
Answer #1
Not the answer you're looking for?
Similar Questions
Ayres Services acquired an asset for $136 million in 2021. The asset is depreciated for financial...
Ayres Services acquired an asset for $136 million in 2021. The
asset is depreciated for financial reporting purposes over four
years on a straight-line basis (no residual value). For tax
purposes the asset’s cost is depreciated by MACRS. The enacted tax
rate is 25%. Amounts for pretax accounting income, depreciation,
and taxable income in 2021, 2022, 2023, and 2024 are as
follows:
($ in millions)
2021
2022
2023
2024
Pretax accounting income
$
365
$
385
$
400
$
435...
At the beginning of 2018, Swifty Company acquired equipment costing $166,000. It was estimated that this...
At the beginning of 2018, Swifty Company acquired equipment
costing $166,000. It was estimated that this equipment would have a
useful life of 6 years and a salvage value of $16,600 at that time.
The straight-line method of depreciation was considered the most
appropriate to use with this type of equipment. Depreciation is to
be recorded at the end of each year. During 2020 (the third year of
the equipment’s life), the company’s engineers reconsidered their
expectations and estimated that...
Ayres Services acquired an asset for $168 million in 2021. The asset is depreciated for financial...
Ayres Services acquired an asset for $168 million in 2021. The
asset is depreciated for financial reporting purposes over four
years on a straight-line basis (no residual value). For tax
purposes the asset’s cost is depreciated by MACRS. The enacted tax
rate is 25%. Amounts for pretax accounting income, depreciation,
and taxable income in 2021, 2022, 2023, and 2024 are as
follows:
($ in millions)
2021
2022
2023
2024
Pretax accounting income
$
385
$
405
$
420
$
455...
Novak Cole Inc. acquired the following assets in January of 2018. Equipment, estimated service life, 5...
Novak Cole Inc. acquired the following assets in January of
2018.
Equipment, estimated service life, 5 years; salvage value,
$15,400
$547,900
Building, estimated service life, 30 years; no salvage
value
$708,000
The equipment has been depreciated using the
sum-of-the-years’-digits method for the first 3 years for financial
reporting purposes. In 2021, the company decided to change the
method of computing depreciation to the straight-line method for
the equipment, but no change was made in the estimated service life
or salvage...
Ivanhoe Cole Inc. acquired the following assets in January of 2018. Equipment, estimated service life, 5...
Ivanhoe Cole Inc. acquired the following assets in January of
2018.
Equipment, estimated service life, 5 years; salvage value,
$14,800
$560,800
Building, estimated service life, 30 years; no salvage
value
$690,000
The equipment has been depreciated using the
sum-of-the-years’-digits method for the first 3 years for financial
reporting purposes. In 2021, the company decided to change the
method of computing depreciation to the straight-line method for
the equipment, but no change was made in the estimated service life
or salvage...
Dixon Development began operations in December 2018. When lots for industrial development are sold, Dixon recognizes...
Dixon Development began operations in December 2018. When lots
for industrial development are sold, Dixon recognizes income for
financial reporting purposes in the year of the sale. For some
lots, Dixon recognizes income for tax purposes when collected.
Income recognized for financial reporting purposes in 2018 for lots
sold this way was $30 million, which will be collected over the
next three years. Scheduled collections for 2019–2021 are as
follows:
2019
$
8
million
2020
14
million
2021
8...
Doug Smith Industries purchased warehouses for $209 million (no residual value) at the beginning of 2018....
Doug Smith Industries purchased warehouses for $209 million (no
residual value) at the beginning of 2018. The warehouses were being
depreciated over a 10-year life using the sum-of-the-years'-digits
method. At the beginning of 2021, management decided to change to
straight-line. Ignoring taxes, the 2021 adjusting entry will
include a debit to depreciation expense of: (Round your
answer to 2 decimal places.):
Multiple Choice
$20.90 million
$102.60 million
$106.40 million
$15.20 million
For financial reporting, Clinton Poultry Farms has used the declining-balance method of depreciation for conveyor equipment...
For financial reporting, Clinton Poultry Farms has used the
declining-balance method of depreciation for conveyor equipment
acquired at the beginning of 2018 for $2,560,000. Its useful life
was estimated to be six years with a $160,000 residual value. At
the beginning of 2021, Clinton decides to change to the
straight-line method. The effect of this change on depreciation for
each year is as follows:
($ in thousands)
Year
Straight-Line
Declining Balance
Difference
2018
$
400
$
853
$
453
2019...
Recording Multiple Temporary Differences The records of Anderson Inc. provide the following information for the tax...
Recording Multiple Temporary Differences
The records of Anderson Inc. provide the following information
for the tax year 2020.
There was no beginning balance in deferred tax account(s).
Taxable income for 2020 was $168,000.
Tax rate is 25%.
Three temporary differences were identified:
Estimated litigation accrual of $56,000, not deductible for tax
purposes. Settlement not expected to take place until 2022.
Excess of accelerated depreciation over GAAP depreciation of
$33,600 caused a difference in the $140,000 GAAP basis and the
106,400...
Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2018...
Described below are six independent and unrelated situations
involving accounting changes. Each change occurs during 2018 before
any adjusting entries or closing entries were prepared. Assume the
tax rate for each company is 40% in all years. Any tax effects
should be adjusted through the deferred tax liability
account.
Fleming Home Products introduced a new line of commercial
awnings in 2017 that carry a one-year warranty against
manufacturer’s defects. Based on industry experience, warranty
costs were expected to approximate 2%...
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 4 minutes ago
asked 4 minutes ago
asked 7 minutes ago
asked 11 minutes ago
asked 27 minutes ago
asked 46 minutes ago
asked 49 minutes ago
asked 54 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago