The following information relates to depreciable assets of Strata Technologies.
(a) Machine A was purchased for $80,000 on January 1, 2008. The entire cost was erroneously expensed in the year of purchase. The machine had a 16-year useful life and no residual value.
(b) Machine B cost $220,000 and was purchased January 1, 2009. The straight-line method of depreciation was used. At the time of purchase, the expected useful life was 10 years with no residual value. In 2013, it was estimated that the total useful life of the asset would be only seven years and that there would be a $12,000 residual value.
(c) Building C was purchased January 1, 2010, for $750,000. The straight-line method of depreciation was originally chosen. The building was expected to be useful for 25 years and to have zero residual value. On January 1, 2013, a change was made from the straight-line depreciation method to the sum-of-the-years'-digits method. Estimates relating to the useful life and residual value remained the same.
Income before depreciation expense was $620,000 for 2013. Depreciation on assets other than those described totaled $65,000.
Instructions:
1. Compute total depreciation expense for 2013.
2. Prepare the statement of retained earnings for 2013. The beginning Retained Earnings balance, before considering items (a) through (c) above, was $890,000. For this problem, assume that only the statements for 2013 are presented, so any prior-period adjustment to retained earnings is done as of January 1, 2013. Strata declared and paid dividends totaling $210,000 in 2013.
3. Make the January 1, 2013, correcting journal entry necessary with respect to item (a), the erroneous expensing of the machine cost.