Correction entries for improper capital asset and depreciation over three years
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What is the adjusting entry to remove an item that was incorrectly capitalized and depreciated for three years? I believe I would reverse the asset entry and remove the accumulated depreciation. But what is the entry? Also to note, this was not sold, but rather just a one-off cost and use of carpet at a trade show. We did not take the carpet with us. Please help!
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Solution Summary
The solution presents two possible choices for the scenario presented. There are complete explanations as well as the format of the journal entry for correction.
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Are you sure the carpet wasn't a capital asset used in business? The definition of a capital asset includes the fact that it has a use beyond one year. I wasn't sure whether it had been used only the first year, or whether it had been used for 3 years and then discarded.
1. If it had only been used in the year of acquisition, you are correct that it shouldn't have been a capital asset. The entire amount should have been charged to expense in that year. In that case, all three years are incorrect for financial statement ...
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