In: Accounting
a. Accumulated depreciation as at December 31, 2017 = $ 8,000,000 / 40 years * 8 = $ 1,600,000.
Book value of the building as at December 31, 2017 = $ 8,000,000 - $ 1,600,000 = $ 6,400,000.
Depreciation expense for 2018 = $ ( 6,400,000 - 2,800,000) / 32 years = $ 112,500.
Adjustment entry:
Date | Account Titles | Debit | Credit |
$ | $ | ||
December 31, 2018 | Depreciation Expense | 112,500 | |
Accumulated Depreciation : Building | 112,500 |
As change in salvage value is only a change in accounting estimate, no retrospective restatement of accounts is required.
b. Accumulated depreciation as on December 31, 2017 = $ 1,200,000 ( 10/55 + 9/55 + 8/55 + 7/55 + 6/55 ) = $ 872,727
Book value as on December 31, 2017 = $ 1,200,000 - $ 872,727 = $ 327,273
Depreciation expense for 2018 = $ 327,273 / 5 years = $ 65,454.60
Change in depreciation method is also treated as a change in accounting estimate, and not as a change in accounting principle. Therefore, no retrospective restatement of accounts is required. The adjusting entry to record depreciation would be :
Date | Account Titles | Debit | Credit |
$ | $ | ||
December 31, 2018 | Depreciation Expense | 65,454.60 | |
Accumulated Depreciation : Office Equipment | 65,454.60 |
c. This is a change in accounting principle which warrants a retrospective restatement of accounts.
d. At the end of 2017, deferred tax asset ( since accounting income was less than taxable income) = $ 60,000 x 0.40 = $ 24,000.
Adjusting entry :
Date | Account Titles | Debit | Credit |
$ | $ | ||
December 31, 2018 | Warranty Expense ( $ 3,200,000 3 %) | 96,000 | |
Warranty Liability | 96,000 | ||
December 31, 2018 | Warranty Liability | 72,000 | |
Cash | 72,000 | ||
December 31, 2018 | Deferred Tax Asset ( 96,000 x 0.40) - $ 24,000 | 14,400 | |
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