Quigley Co. bought a machine on January 1, 2016 for $1,402,500. It had a $122,200 estimated residual value and a 9-year life. An expense account was debited on the purchase date. Quigley uses straight-line depreciation. This was discovered in 2018. Prepare the entries related to the machine for 2018. Ignore taxes.

Dr Machine account                                   $1,402,500

Cr Retained earnings(balancing figure)                            $1,260,244.44  

Cr Accumulated depreciation

(2 years depreciation  142,255.56*2)                                $284,511.11  

Dr Depreciation expense (2018)                $ 142,255.56  

Cr Accumulated depreciation(2018)                                    $142,255.56  

Explanation:

The yearly depreciation on the asset=cost-residual value/useful life

cost is $1,402,500

residual value is $122,200

useful life is 9 years

depreciation=($1,402,500-$122,200)/9

                    =$142,255.56  

However the depreciation has not been recognized for 3 years now(2016-2018)

Also the cost of machine was debited to expense that needs to be reversed

The appropriate entries would be

Dr Machine account                                   $1,402,500

Cr Retained earnings(balancing figure)                            $1,260,244.44  

Cr Accumulated depreciation

(2 years depreciation  142,255.56*2)                                $284,511.11  

Dr Depreciation expense (2018)                $ 142,255.56  

Cr Accumulated depreciation(2018)                                    $142,255.56