Question: In 2018, Meg Inc, discovered a n error in its 2015 financial statements. The firm recorded $11,000,000 of depreciation expense on its equipment instead of
In 2018, Meg Inc, discovered a n error in its 2015 financial statements. The firm recorded $11,000,000 of depreciation expense on its equipment instead of recording $10,000,000. Meg has a constant tax rate of 40% and reports 3 years of comparative income statements and 2 years of comparative balance sheets with its financial reports. Assume that Meg uses the same depreciation method for tax and financial reporting. Retained earnings and accumulated depreciation as of December 31, 2017, were $12,075,000 and $5,400,000, respectively.
Required
a. What is the necessary journal entry to record the prior-period adjustment?
b. How would Meg report its accumulated depreciation and retained earnings balances in the restated balance sheet dated December 31, 2017?
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