On
January 1, 2007, Zui Corporation purchased a building and equipment that had the
following useful lives, residual values, and costs:
Building:
40-year estimated useful life, $50,000 residual value, $1,200,000 cost
Equipment:
12-year estimated useful life, $10,000 residual value, $130,000 cost
The
building was depreciated under the double-declining-balance method through
2010. In 2011, the company decided to switch to the straight-line method of
depreciation because of a change in the pattern of benefits received. In 2012,
Zui decided to change the equipment’s total useful life to nine years, with a
residual value of $5,000 at the end of that time.
The
equipment is depreciated using the straight-line method.
Instructions
(a)
Prepare the journal entry(ies) necessary to record the depreciation expense on
the building in 2011. (Ignore tax effects.)
(b)
Calculate the depreciation expense on the equipment for 2011. (Ignore tax
effects.)
(a) Calculation
of depreciation for 2011 on the building:
|
Cost of building
|
|
|
$1,200,000
|
|
Less: Depreciation
prior to 2011
|
|
|
|
|
2007 ($1,200,000 – $0) X .05*
|
|
$60,000
|
|
|
2008 ($1,200,000 – $60,000) X .05
|
|
57,000
|
|
|
2009 ($1,200,000 – $117,000) X .05
|
|
54,150
|
|
|
2010 ($1,200,000 – $171,150) X .05
|
|
51,442
|
222,592
|
|
Carrying amount, January 1, 2011
|
|
|
$ 977,408
|
*Double-declining-balance
rate = (1 ÷ 40) X 2 = 5%
Depreciation
expense for 2011: $25,761
[($977,408 – $50,000) ÷ 36 (=40 – 4)
years]
Depreciation
Expense.................. 25,761
Accumulated
Depreciation—Building. 25,761
(b) Calculation
of depreciation for 2011 on the equipment:
|
Cost of equipment
|
|
|
$130,000
|
|
Less: Accumulated
depreciation
|
|
|
|
|
[($130,000 –
$10,000) ÷ 12] X 4 years
|
|
|
40,000
|
|
Carrying amount, January 1, 2011
|
|
|
$ 90,000
|
2011
Depreciation expense = 90,000-5/ 9-4= 85000/5 = $17,000
