Mann
Corporation decided at the beginning of 2011 to change from the capital cost
allowance (CCA) method of depreciating its capital assets (a declining-balance
method that is a non-GAAP method because CCA does not remove the asset's
carrying amount on disposition) to straight-line depreciation because the
straight-line method will result in more relevant financial information and is
a GAAP compliant method. The company will continue to use the capital cost allowance
method for tax purposes. For years prior to 2011, total depreciation expense under
the two methods is as follows: capital cost allowance, $117,000; and
straight-line, $76,000. The tax rate is 30%. Mann follows accounting standards for
private enterprises (ASPE). Prepare Mann’s 2011 journal entry to record the
accounting change.
Accumulated Depreciation ($117,000 – $76,000) 41,000
Future
Income Tax Liability.......... 12,300
Retained
Earnings – Cumulative Effect of
Correction of Accounting Error... 28,700
[$41,000 X (1 – 30%)]
Note that this is considered to be a correction of an
accounting error since the company is changing from a non-GAAP method to a GAAP
method.
