Question

1A. Before the 2010 books are closed, you discover that on January 2, 2010, when a new machine was purchased for $10,000, the $10,000 was debited to Machinery Expense. The new machine, which is being depreciated under the straight line method, has a 10 year life and no estimated salvage value. No depreciation was recorded because of the error. If no correction is made...

a. net income for 2010 will be understated by $8,000

b. net income for 2010 will be understated by 2,000

c. total assets on December 31, 2010 balance sheet will be understated by 10,000

d. the trial balance will not balance

1B. The error in 1A is likely to be discovered because...

a. Inspection of the trial balance would reveal Machinery had a balance that was not normal

b. Inspection of the trial balance would reveal Machinery Expense had a unusual large balance

c. Inspection of trial balance would reveal no depreciation expense

d. none of the above

1C. When preparing 2014 financial statements, you discover that depreciation expense was not recorded in 2013. Which of the following statements about correction of error in 2014 is NOT true?

a. The correction requires a prior period adjustment

b. the correcting entry will be different than if the error had been corrected the previous year when it occured

c. The 2011 depreciation expense account will be involved in the correcting entry

d. All above statements are true

Explain the answer please.

Answer 1

1A

a.

c. total assets on December 31, 2010 balance sheet will be understated by 10,000

$10,000 was debited to Machinery Expense increases expense hence asset is understated

1B. The error in 1A is likely to be discovered because...

c. Inspection of trial balance would reveal no depreciation expense

1C

a. The correction requires a prior period adjustment

the unaccounted depreciation wil be adjusted againt retained earrning by debiting retained earnings and crediting Accumulated derepcaiton expense.