[cynthiazapata]

I am doing a iregular income statement, it says that at the beginning of 2005 the company purchased a machine for 54000. Salvage value of $9000.00 useful life of 6 years. The bookkeeper failed to deduct the salvage value in computing the depreciation. I know that the yearly depreciation is $7500.00, I need to know how to post this to the income statement, this is what is shown. Also the tax rate is 30%

Error in computation of depreciation
As computed $900.00 x 3 years 27000.00
Corrected 22500.00 Formula
As restated Formula
I do not understand how to post the rest.

[morgaine300]

Well, first, find the difference between what the bookkeeper did and what the real figure should be. Then figure the tax on that amount so that you know what it would be reduced to after-tax.

Then you have to start thinking, which accounting requires a lot of, even when you know how to do it. Here's what you have to think about:

Did the bookkeeper record too little or two much depreciation?

What does depreciation do to net income?

Therefore, if depreciation is over- or under-stated, what is that effect on net income going to be?

(Make up a pre-depreciation income number and see what changes, if that helps.)

What does net income do to retained earnings?

This is a prior period adjustment and should be adjusted to retained earnings.

See what you can figure out.