In 2009, Internal Auditors Discovered That Fay, Inc

question 90

Multiple Choice

In 2009, internal auditors discovered that Fay, Inc. had debited an expense account for the $700,000 cost of a machine purchased on January 1, 2006. The machine's useful life was expected to be 5 years with no residual value. Straight-line depreciation is used by Fay. The journal entry to correct the error will include a credit to accumulated depreciation of:

• A)$140,000.
• B)$280,000.
• C)$420,000.
• D)$700,000.During the three year period, depreciation expense was understated by $420,000, but other expenses were overstated by $700,000, so net income during the period was understated by $280,000, which means retained earnings is currently understated by that amount.During the three year period, accumulated depreciation was understated, and continues to be understated by $420,000.To correct incorrect accounts

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Definitions:

Current Assets

Current assets are assets that are expected to be converted into cash, sold or consumed within a year or within the normal operating cycle of the business, such as cash, inventory, and receivables.

Installation

refers to the process of setting up and configuring equipment or software to make it ready for use.

Repairs

Expenditures to restore or maintain an asset in its normal operating condition without significantly improving its life or value.

Machine

An equipment or apparatus designed to perform a specific task, often powered by electricity or mechanical energy.