At the beginning of 20X1, Monterey Company purchased a new piece of equipment at a cost of

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Question:

At the beginning of 20X1, Monterey Company purchased a new piece of equipment at a cost of $50,000. The equipment was expected to have a ten-year life and no salvage value. Unfortunately, the bookkeeper at Monterey erroneously recorded the purchase of the equipment with a debit to maintenance expense. This error was not discovered until the 20X6. The company had planned to use the Straight-line method of depreciation for both financial statement and tax reporting purposes. The company is in a 40 percent tax bracket.

REQUIRED:

1. Prepare the journal entry needed to record the correction of the error.

2. What is the amount for depreciation expense in 20X6 (the current year)?

3. What is the amount for depreciation expense in 20X7 (the following year)?