Question

Bonita Cole Inc. acquired the following assets in January of 2015. Equipment, estimated service life, 5 years; salvage value, $16,000 $559,000 Building, estimated service life, 30 years; no salvage value $675,000 The equipment has been depreciated using the sum-of-the-years’-digits method for the first 3 years for financial reporting purposes. In 2018, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight-line method. (a) Prepare the general journal entry to record depreciation expense for the equipment in 2018. (b) Prepare the journal entry to record depreciation expense for the building in 2018. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) No. Account Titles and Explanation Debit Credit (a) (b)

Answer 1

Here in the given case there este two assets they are building and equipment.

Firstly equipment was depreciated as per sum of digits method but now it was changed to the straight line method.

1. Here we have to calculate the depreciation for equipment for 3 years as per sum of years digit method.

Y cost life fraction expense book value

1 559000 5 5/15 186333 372667

2 559000 4 4/15 149067 409933

3 559000 3 3/15 111800 4472000

Total depreciation expense for 3 yrs  447200

now we calculate as per straight line method

Depreciation = (cost - salvage value) ÷ useful number of years

=(559000 - 16000) ÷ 5

= 543000 ÷ 5

= 108600 per year

We want for 3 years so 108600 × 3 = 325800

As per straight line method depreciation is 325800

As per sum of years method depletion is 447200

Now we have to pass journal entry for this action.

Ww have to raise the asset value by (447200 - 325800) = 121400

So debit equipment a/c by 121400 and credit accumulated deprecation or profit and loss a/c for 121400.

Journal entry

Equipment a/c ......................................Dr 121400

To profit and loss a/c 121400

(Being the depreciation method changed

from the sum of year to straight line )

Now we discuss about the buildings

The buildings has cost of 675000

And salvage value = 0

Useful life = 30 years.

Bit the useful life is revalued to 50 years then the depretiadepr for the first 3 years are

Depreciation = ( cost - salvage value ) ÷ useful life

= (675000 - 0) ÷ 30

= 22500 per year but we want for 3 years.

= 22500 × 3

= 67500

Depreciation after revaluation of the life is

= (675000 - 0 ) ÷ 40

= 16875

= 16875 × 3

= 50675

The difference is (67500 - 50675) = 16875

So journal entry is

Buildings a/c.....................................Dr 16875

To profit and loss a/c 16875

( Being the useful life of the buildings

are revalued and difference amount

is capitalized)

These are all the information about the question.

I hope, all the above mentioned points and entries and calculations are useful to you.

Thank you.