Khim
Inc. acquired the following assets in January 2008:
Equipment:
estimated service life, 5 years; residual value, $15,000 …… $465,000
Building:
estimated service life, 30 years; no residual value …………… $780,000
The
equipment was depreciated using the double-declining-balance method for the
first three years for financial reporting purposes. In 2011, the company
decided to change the method of calculating depreciation to the straight-line
method for the equipment because of a change in the pattern of benefits
received, but no change was made in the estimated service life or residual
value. It was also decided to change the building’s total estimated service
life from 30 years to 40 years, with no change in the estimated residual value.
The building is depreciated on the straight-line method.
Instructions
(a)
Prepare the journal entry to record depreciation expense for the equipment in
2011. (Ignore tax effects and round to the nearest dollar.)
(b)
Prepare the journal entry to record the depreciation expense for the building
in 2011. (Ignore tax effects and round to the nearest dollar.)
(a) Depreciation
to date on the equipment:
|
Double-declining depreciation
|
|
|
2008 (2/5 X $465,000)
|
$186,000
|
|
2009 (2/5 X $279,000)
|
111,600
|
|
2010 (2/5 X $167,400)
|
66,960
|
|
|
$364,560
|
Cost of
equipment................. $465,000
Depreciation
to date............. 364,560
Carrying
amount (Dec. 31, 2010)... $100,440
Depreciation
for 2011: $(100,440 – 15,000) ÷ (5 – 3) = $42,720
Depreciation
Expense.................. 42,720
Accumulated
Depreciation—Equipment. 42,720
(b) Depreciation
to date on building:
$780,000 /
30 years = $26,000 per year
$26,000 X 3
years = $78,000 depreciation to date
Cost of
building.................. $780,000
Depreciation
to date............ 78,000
Carrying
amount (Dec. 31, 2010)... $702,000
Depreciation
for 2011: $702,000 ÷ (40 – 3) = $18,973
Depreciation
Expense.................. 18,973
Accumulated
Depreciation—Buildings. 18,973
