Question

Problem 22-02 Stellar Company is in the process of preparing its financial statements for 2020. Assume that no entries for depreciation have been recorded in 2020. The following information related to depreciation of fixed assets is provided to you. 1. Stellar purchased equipment on January 2, 2017, for $89,100. At that time, the equipment had an estimated useful life of 10 years with a $5,100 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2020, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $2,800 salvage value. 2. During 2020, Stellar changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $310,000. It had a useful life of 10 years and a salvage value of $31,000. The following computations present depreciation on both bases for 2018 and 2019. 2019 2018 Straight-line $27,900 $27,900 Declining-balance 49,600 62,000 3. Stellar purchased a machine on July 1, 2018, at a cost of $120,000. The machine has a salvage value of $20,000 and a useful life of 8 years. Stellar’s bookkeeper recorded straight-line depreciation in 2018 and 2019 but failed to consider the salvage value.

Your answer is partially correct. Try again. Prepare the journal entries to record depreciation expense for 2020 and correct any errors made to date related to the information provided. (Ignore taxes.) (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 1. 2. 3. (To record current year depreciation.) (To correct prior year depreciation.) SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT

Your answer is partially correct. Try again. Show comparative net income for 2019 and 2020. Income before depreciation expense was $310,000 in 2020, and was $320,000 in 2019. (Ignore taxes.) STELLAR COMPANY Comparative Income Statements For the Years 2020 and 2019 2020 2019 Income before depreciation expense $ $ Depreciation expense Net income $ $

Answer 1

Prepare the journal entries to record depreciation expense for 2020 and correct any errors made to date related to the information provided. (Ignore taxes.) (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
1)	Depreciation Expenses	$15,275
	Accumulated Depreciation - Equipment		$15,275
2)	Depreciation Expenses	$20,925
	Accumulated Depreciation - Building		$20,925
3)	Depreciation Expenses ($120000-$20000)/8	$12,500
	Accumulated Depreciation - Machinery		$12,500
	(To record current year depreciation.)
4)	Accumulated Depreciation - Machinery	$3,750
	Retained Earnings		$3,750
	(To correct prior year depreciation.)
1)
Cost of equipment	$89,100
Less: Salvage Value	-$5,100
Depreciable Costs	$84,000
Depreciation to 2020
Year	Book Value	life	Depreciation
2017	$84,000	10	$8,400
2018	$84,000	10	$8,400
2019	$84,000	10	$8,400
Total			$25,200
Depreciation in 2020
Cost of Equipment	$89,100
Less: Depreciation to 2019	-25200
Book Value on Jan 1 2019	$63,900
Less(New salvage value)	-$2,800
Depreciable Costs	$61,100
Remaining useful life	4	years
Depreciation in 2020 =($61,100/4 years)	$15,275
2)
Cost Of Building	$310,000
Declining-balance depreciation 2019	-49600
Declining-balance depreciation 2018	-62000
Book Value on Jan 1 2020	$198,400
Less: Salvage Value	-$31,000
Depreciable Costs	$167,400
Remaining useful life	8	years
Depreciation in 2020 = ($167,400/8 years)	$20,925
3)	Depreciation taken	Depreciation that should be take	Difference
Depreciation Taken 2018 = ($120,000/8)*1/2	7500	6250	1250
Depreciation Taken 2019 = ($120,000/8)	15000	12500	2500
		Total	3750
STELLAR COMPANY
Comparative Income Statements
For the Years 2020 and 2019
	2020	2019
Income before depreciation expense	$310,000	$320,000
Depreciation expense	-48700	-70500
Net income	$261,300	$249,500
Depreciation expenses	2020	2019
Equipment	$15,275	$8,400
Building	$20,925	$49,600
Machinery	$12,500	$12,500
Total	$48,700	$70,500