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During 2019 and 2020, Faulkner Manufacturing used the sum-of-the-years’-digits (SYD) method of depreciation for its depreciable...

During 2019 and 2020, Faulkner Manufacturing used the sum-of-the-years’-digits (SYD) method of depreciation for its depreciable assets, for both financial reporting and tax purposes. At the beginning of 2021, Faulkner decided to change to the straight-line method for both financial reporting and tax purposes. A tax rate of 25% is in effect for all years.

For an asset that cost $30,000 with an estimated residual value of $1,000 and an estimated useful life of 10 years, the depreciation under different methods is as follows:

Year Straight Line SYD Difference
2019 $ 2,900 $ 5,273 $ 2,373
2020 2,900 4,745 1,845
$ 5,800 $ 10,018 $ 4,218

1. Prepare the journal entry that Faulkner will record in 2021 related to the change. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar.)

  • Record the 2021 depreciation adjusting entry
Event General Journal Debit Credit
1   

2.

Suppose instead that Faulkner previously used straight-line depreciation and changed to sum-of-the-years’- digits in 2021. Prepare the journal entry that Faulkner will record in 2021 related to the change. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to nearest whole dollar.)

  • Record the 2021 depreciation adjusting entry.
Event General Journal Debit Credit
1      

Solutions

Expert Solution

1 Event General Journal Debit Credit
1 Depreciation expense $2,373
Accumulated depreciation $2,373
Working
Asset's cost $30,000
Accumulated depreciation (SYD) to date -$10,018
Undepreciated cost, Jan. 1, 2021 $19,982
Estimated residual value -$1,000
To be depreciated over the remaining 8 years $18,982
Annual straight-line depreciation 2021-2028 $2,373
2 Event General Journal Debit Credit
1 Depreciation expense $5,156
Accumulated depreciation $5,156
Working
Asset's cost $30,000
Accumulated depreciation (SL) to date -$5,800
undepreciated cost, Jan. 1, 2021 $24,200
Estimated residual value -$1,000
To be depreciated over the remaining 8 years $23,200
Annual SYD depreciation 2021 $5,156
($23,200 x 8/36)

ekkarill92 answered 2 years ago
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