CPA · Question 16 · Area III: Select Transactions
Pinnacle Corp. discovered in Year 2 that it had failed to record depreciation expense of $45,000 in Year 1. The error was discovered before the Year 2 financial statements were issued. Pinnacle's tax rate is 25%.<br/><br/>How should Pinnacle correct this error in its Year 2 financial statements?
Answer options:
Debit Depreciation Expense $45,000; Credit Accumulated Depreciation $45,000
Debit Retained Earnings $45,000; Credit Accumulated Depreciation $45,000
Debit Retained Earnings $33,750; Credit Accumulated Depreciation $45,000; Credit Income Tax Receivable $11,250
No entry required; disclose in notes only
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