In 2018, internal auditors discovered that fay, inc., had debited an expense account for the $700,000 cost of a machine purchased on january 1, 2015. the machine's useful life was expected to be five years with no residual value. straight-line depreciation is used by fay. the journal entry to correct the error will include a credit to accumulated depreciation of:

Cost of a machine purchased on January 1, 2015 (Equipment) = $700,000

Accumulated depreciation:

= ($700,000 ÷ 5 years) ÷ 3 years

= $140,000 ÷ 3 years

= $420,000

Retained earnings = Cost of machine - Accumulated depreciation

                              = $700,000 - $420,000

                              = $280,000

Therefore, the journal entry is as follows:

Equipment A/c                        Dr. $700,000

To Accumulated depreciation                        $420,000

To Retained earnings                                      $280,000

(To record the correct entry)

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