Question

Equipment was purchased on January 2, 2017, for $24,000, but no portion of the cost has been charged to depreciation. The corporation wishes to use the straight-line method for these assets, which have been estimated to have a life of 10 years and no salvage value. What effect does this error have on net income in 2017? What entry is necessary to correct for this error, assuming that the books are not closed for 2017?

Short answer

Depreciation expense is debited by $2,400, and accumulated depreciation is credited by $2,400. Income was overstated by the amount of $2,400

Step-by-step solution

Calculation of depreciation expense

$$\begin{gathered} Depreciationexpense=\frac{Cost}{Estimatedlife} \\ =\frac{24,000}{10} \\ =\$2,400 \end{gathered}$$

Income was overstated by $2,400.

Journal Entry

Date	Particulars	Debit ($)	Credit ($)
	Depreciation expense	2,400
	Accumulated depreciation		2,400
	Being correcting entry