Question

Dunlop Company purchased a machine on January 1, 2014, for $44,000,000. At the time the machine had an estimated useful life of 10 years and no residual value. On December 31, 2017, the accountant found that the entry for depreciation expense was omitted in 2015. The Board of Directors informed the accountant that the company plans to switch to straight line depreciation starting with the year 2017. The company presently uses the sum of the years’digits method. Prepare the general journals entries that should be made on December 31, 2017 to record these events. (Ignore tax effects)

                                                                                  

Answer 1

                                                                               

Date	General journal	Debit	Credit
December 31, 2015	Retained Earnings [$440,000 × (9/55)]	72,000
	Accumulated Depreciation—Machinery		72,000
	To correct for the omission of depreciation expense in 2015

Cost of Machine			440000
Less: Depreciation prior to 2015
Sum-of-the-years’-digits depreciation
2014	$440,000 × (10/55)]	80000
2015	$440,000 × (9/55)]	72000
2016	$440,000 × (8/55)]	64000	216000
Book Value at January 1, 2017			224000
Remaining life			7
Deprecation for 2017			32000

Date	General journal	Debit	Credit
December 31, 2017	Depreciation Expense	32,000
	Accumulated Depreciation—Machinery		32,000
	To record depreciation expense for 2017