George Young Industries (GYI) acquired industrial robots at the beginning of 2022 and added them to the
Question:
George Young Industries (GYI) acquired industrial robots at the beginning of 2022 and added them to the company’s assembly process. During 2024, management became aware that the $1 million cost of the equipment was inadvertently recorded as repair expense on GYI’s books and on its income tax return. The industrial robots have 10-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method for financial reporting purposes and for tax purposes it is considered to be MACRS 7-year property. Cost deducted over 7 years by the modified accelerated recovery system as follows:
The tax rate is 25% for all years involved.
Required:
1. Prepare any journal entry necessary as a direct result of the error described.
2. Will GYI account for the change (a) retrospectively or (b) prospectively?
3. Prepare the adjusting entry for 2024 depreciation.
Step by Step Answer: