• (12 Marks)   In 2021, before its books were closed off, Ajax Corp. determined that a machine it purchased on   January 1, 2019, at a cost of $250,000, was expensed and appeared on both the company’s income   statement and tax return. As the amount of the expenditure was material, it should have been   capitalized and depreciated on a straight-line basis over 10 years. The estimated residual value at   the purchase date was $25,000. Other information follows:  
  • • Notwithstanding that it expensed the cost of the machine on its 2021 tax return, AjaxCorp. properly claimed CCA for the machine on its tax return from January 1, 2021, onward.
  • • Ajax Corp.’s tax rate is 20%.
  • • In 2024, Ajax estimated that the useful life of the machine was now only a total of eight years, and the residual value at the end of the useful life would be nil.
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  • Required: 1. Prepare the journal entry in 2021 necessary to correct the prior-year error (9 Marks) 2. Prepare the journal entry 2024. Discuss the type of accounting change for this transaction and explain its implication. (3 Marks)

Answer rating: 100% (QA)

1 Debit Credit Accumulated Depreciation 25000 Equipment ... View the full answer