Question

On January 1, 2014, Pronghorn Company purchased a building and equipment that have the following useful lives, salvage values, and costs.

Building, 40-year estimated useful life, $46,800 salvage value, $762,400 cost

Equipment, 12-year estimated useful life, $10,000 salvage value, $101,800 cost

The building has been depreciated under the double-declining-balance method through 2017. In 2018, the company decided to switch to the straight-line method of depreciation. Pronghorn also decided to change the total useful life of the equipment to 9 years, with a salvage value of $4,800 at the end of that time. The equipment is depreciated using the straight-line method.

(a) Prepare the journal entry necessary to record the depreciation expense on the building in 2018.

(b) Compute depreciation expense on the equipment for 2018.

Answer 1

Ans.(a)

Date	Particulars	Dr.($)	Cr.($)
Dec.31,2018	Depreciation a/c Dr.	15,949
	To Building a/c		15,949
	(depreciation on building charged as per SLM method)

Note-1

DDB depreciation rate = SLM dep. rate2

=(1/40)100 = 2.5%2 = 5%

Computation of depreciation expense on the building for 2018

Particulars	$
cost of building	762,400
(-) depreciation@5% (2014) as per DDB method	38,120
	724,280
(-) depreciation@5%(2015) as per DDB method	36,214
	688,066
(-) depreciation@5%(2016) as per DDB method	34,403
	653,663
(-) depreciation@5%(2017) as per DDB method	32,683
WDV as on Jan.1,2018	620,980
revised depreciation for 2018 as per SLM method($620,980-$46,800)/36	15,949

Ans.(b)

Computation of depreciation expense on the equipment for 2018

Particulars	$
cost of equipment	101,800
(-) depreciation for 2014-2017 as per SLM method
($101,800-$10,000)/12 = $7,650 4 years	30,600
WDV as on Jan.1,2018	71,200
revised depreciation for 2018 as per SLM method ($71,200-$4,800)/9	7,378