Question
In: Accounting
George Young Industries (GYI) acquired industrial robots at the beginning of 2018 and added them to...
George Young Industries (GYI) acquired industrial robots at the
beginning of 2018 and added them to the company’s assembly process.
During 2021, management became aware that the $2.8 million cost of
the equipment was inadvertently recorded as repair expense on GYI’s
books and on its income tax return. The industrial robots have
10-year useful lives and no material salvage value. This class of
equipment is depreciated by the straight-line method for financial
reporting purposes and for tax purposes it is considered to be
MACRS 7-year property. Cost deducted over 7 years by the modified
accelerated recovery system as follows:
| Year | MACRS Deductions |
||
| 2018 | $ | 400,120 | |
| 2019 | 685,720 | ||
| 2020 | 489,720 | ||
| 2021 | 349,720 | ||
| 2022 | 250,040 | ||
| 2023 | 249,760 | ||
| 2024 | 250,040 | ||
| 2025 | 124,880 | ||
| Totals | $ | 2,800,000 | |
The tax rate is 25% for all years involved.
Required:
1. & 3. Prepare any journal entry necessary as
a direct result of the error described and the adjusting entry for
2021 depreciation.
2. Will GYI account for the change (a)
retrospectively or (b) prospectively?
- Record the correcting entry.
- Record the 2021 adjusting entry for depreciation
Solutions
Expert Solution
| In the Beginning of 2018 | |||||||||
| Cost of Asset | 2800000 | ||||||||
| Salvage Value | NIL | ||||||||
| Useful life of Asset | 10 Years | ||||||||
| Applied | SLM Method of Depreciation | ||||||||
| Decemebr 2018 | |||||||||
| Decembr 2019 | |||||||||
| Decemebr 2020 | |||||||||
| Dcembr 2021 | Found change in Depreciation from SLM to MACRS 7 Years | ||||||||
| Henc Carrying value till December 2020 | |||||||||
| Depreciation under SLM= 2800000-0/10 = 280000 | |||||||||
| Carrying Value | |||||||||
| Decemebr 2018 | 280000 | 2520000 | |||||||
| Decembr 2019 | 280000 | 2240000 | |||||||
| Decemebr 2020 | 280000 | 1960000 | |||||||
| Opening value for Year Ended 2021 | 1960000 | ||||||||
| Depreciation will be as per MARCs 7 method Instead of 280000 | |||||||||
| Shall be applied prospectively not retrospecyively | |||||||||
| Because IFRS 8 Speciafically disclosed that change in method of Depreciation is not change in Accounting policy | |||||||||
| But change in Accounting Estimate henc effect for the same should be applied prospectively not retrospectively | |||||||||
| Hence Depreciation will be charged as 14.29 % ( MARCs recovery rate) | |||||||||
| Depreciation A/c Dr. | 280084 | ||||||||
| To Asset | 280084 | ||||||||
| ( Being Depreciation Charged on MARCs 7 Basis ) | |||||||||
| Secondly Disclosure for Change in method will be disclose in the books of Accounts. |
ekkarill92 answered 3 years agoRelated Solutions
George Young Industries (GYI) acquired industrial robots at the beginning of 2018 and added them to...
George Young Industries (GYI) acquired industrial robots at the
beginning of 2018 and added them to the company’s assembly process.
During 2021, management became aware that the $2.8 million cost of
the equipment was inadvertently recorded as repair expense on GYI’s
books and on its income tax return. The industrial robots have
10-year useful lives and no material salvage value. This class of
equipment is depreciated by the straight-line method for financial
reporting purposes and for tax purposes it is...
George Young Industries (GYI) acquired industrial robots at the beginning of 2015 and added them to...
George Young Industries (GYI) acquired industrial robots at the
beginning of 2015 and added them to the company’s assembly process.
During 2018, management became aware that the $2.0 million cost of
the machinery was inadvertently recorded as repair expense on GYI’s
books and on its income tax return. The industrial robots have
10-year useful lives and no material salvage value. This class of
equipment is depreciated by the straight-line method for financial
reporting purposes and for tax purposes it is...
At the beginning of 2018, VHF Industries acquired a equipment with a fair value of $9,947,400...
At the beginning of
2018, VHF Industries acquired a equipment with a fair value of
$9,947,400 by issuing a three-year, noninterest-bearing note in the
face amount of $12 million. The note is payable in three annual
installments of $4 million at the end of each year. (FV of $1, PV
of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
(Use appropriate factor(s) from the tables
provided.)
Required:
1.
What is the effective rate of...
At the beginning of 2018, VHF Industries acquired a equipment with a fair value of $7,209,560...
At the beginning of 2018, VHF Industries acquired a equipment
with a fair value of $7,209,560 by issuing a five-year,
noninterest-bearing note in the face amount of $10 million. The
note is payable in five annual installments of $2 million at the
end of each year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD
of $1 and PVAD of $1) (Use appropriate factor(s) from the
tables provided.)
Required:
1. What is the effective rate of...
At the beginning of 2018, VHF Industries acquired a machine with a fair value of $6,074,700...
At the beginning of 2018, VHF Industries acquired a machine with
a fair value of $6,074,700 by signing a four-year lease. The lease
is payable in four annual payments of $2 million at the end of each
year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and
PVAD of $1) (Use appropriate factor(s) from the tables
provided.)
Required:
1. What is the effective rate of interest implicit
in the agreement?
2-4. Prepare the...
At the beginning of 2018, Advanced Industries acquired a large, custom-made machine with a fair value...
At the beginning of 2018, Advanced Industries acquired a large,
custom-made machine with a fair value of $7,331,130 by signing a
three-year lease agreement. The lease is payable in three annual
payments of $3.0 million at the end of each year.
Required:
a. What is the effective annual interest rate implicit in the
agreement?
b. Prepare the lessee's journal entries required at the
inception of the lease, the first lease payment which is due and
paid December 31, 2018, and...
At the beginning of 2021, VHF Industries acquired a machine with a fair value of $5,070,150...
At the beginning of 2021, VHF Industries acquired a machine with
a fair value of $5,070,150 by issuing a two-year,
noninterest-bearing note in the face amount of $6 million. The note
is payable in two annual installments of $3 million at the end of
each year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1
and PVAD of $1)
1. What is the effective rate of interest implicit in the
agreement?
Interest rate
%...
At the beginning of 2021, VHF Industries acquired a machine with a fair value of $9,978,930...
At the beginning of 2021, VHF Industries acquired a machine with
a fair value of $9,978,930 by signing a five-year lease. The lease
is payable in five annual payments of $2.7 million at the end of
each year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1
and PVAD of $1) (Use appropriate factor(s) from the tables
provided.) Required: 1. What is the effective rate of interest
implicit in the agreement? 2-4. Prepare the...
At the beginning of 2021, VHF Industries acquired a machine with a fair value of $4,803,660...
At the beginning of 2021, VHF Industries acquired a machine with
a fair value of $4,803,660 by issuing a three-year,
noninterest-bearing note in the face amount of $6 million. The note
is payable in three annual installments of $2 million at the end of
each year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1
and PVAD of $1) (Use appropriate factor(s) from the tables
provided.)
Required:
1. What is the effective rate of...
At the beginning of 2016, VHF Industries acquired a equipment with a fair value of $6,339,740...
At the beginning of 2016, VHF Industries acquired a equipment
with a fair value of $6,339,740 by issuing a four-year,
noninterest-bearing note in the face amount of $8 million. The note
is payable in four annual installments of $2 million at the end of
each year.
1. What is the effective rate of interest implicit in the
agreement?
2. Record these three transactions: 01/01/2016 purchase of the
equipment, interest expense on 31/12/2016, and interest expense on
31/12/2017.
3. Suppose the...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Why does a particular codon represent only one specific amino acid?
- Write a function template sort that takes two references to generic objects and switches them if...
- What 2 things happen to the melting point of a solid when an impurity is present?
- How Can Hominin Evolution be characterized as " mosaic evolution" Use examples of species from the...
- Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of...
- Mobile and wireless devices are being increasingly used in the Business Administration and Management Industry. write...
- What are the options that might be considered in relation to introducing flexible work practices? What...
ADVERTISEMENT