Question

Joy Cunningham Co. purchased a machine on January 1, 2017, for $407,000. At that time, it was estimated that the machine would have a 10-year life and no residual value. On December 31, 2020, the firm’s accountant found that the entry for depreciation expense had been omitted in 2018. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation because of a change in the pattern of the way the asset is used, starting with the year 2020. At present, the company uses the sum-of-the-years’-digits method for depreciating equipment.

Prepare the general journal entries that should be made at December 31, 2020, to record these events. Ignore income tax effects. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	Retain earnings	enter a debit amount	enter a credit amount
	Accumulated depreciation- Machinery	enter a debit amount	enter a credit amount
	(To correct for the omission of depreciation expense in 2018)
Dec. 31	Depreciation expenses	enter a debit amount	enter a credit amount
	Accumulated depreciation- Machinery	enter a debit amount	enter a credit amount
	(To record depreciation expense for 2020)

Answer 1

Journal Entries
Date	Accounts Title and Explanation	Debit	Credit
Dec.31	Retained Earnings	$66,600.00
	Accumulated Dep. - Machinery ($407,000 * 9 / 55)		$66,600.00
	(To correct for the omission of depreciation expense in 2018)
Dec.31	Depreciation A/c	$29,600.00
	Accumulated Depreciation - Machinery		$29,600.00
	(To record depreciation expense for 2020)
Workings:
	Cost Of machine		$407,000.00
	Less: Dep. Prior to 2020
	2017 - $407,000 X 10/55	$74,000.00
	2018 - $407,000 X 9/55	$66,600.00
	2019 - $407,000 X 8/55	$59,200.00	$199,800.00
	Book Value as on 01.01.2020		$207,200.00
	Depreciation For the 2020 : $207,200 / 7 = $29,600