Question
In: Accounting
Collins Corporation purchased office equipment at the beginning of 2016 and capitalized a cost of $1,974,000....
Collins Corporation purchased office equipment at the beginning of 2016 and capitalized a cost of $1,974,000. This cost figure included the following expenditures: Purchase price $ 1,820,000 Freight charges 27,000 Installation charges 17,000 Annual maintenance charge 110,000 Total $ 1,974,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2016 and 2017. In 2018, after the 2017 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company’s controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment.
Required: 1. Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2018.
2. Ignoring income taxes, prepare any 2018 journal entry(s) related to the change in depreciation methods.
Solutions
Expert Solution
| Double declining method percentage | |||
| Useful life | 8 | ||
| Double declining percentage | 25.00% | ||
| (1/8)*2 | |||
| Year | Correct Depriciation Expense | Incorrect Depriciation Expense | |
| 2016 | =(1974000-110000)*25% | =1974000*25% | |
| 466000 | 493500 | ||
| 2017 | =(1974000-110000-466000)*25% | =(1974000-493500)*25% | |
| 349500 | 370125 | ||
| Total | 815500 | 863625 | |
| Accumulated Depriciation Overstated | = (863625-815500) | ||
| 48125 | |||
| Mainatenance Expense Understated | 110000 | ||
| Equipment Overstated | 110000 | ||
| Net Income Overstated | = 110000-48125 | ||
| 61875 | |||
| Account Tiltles & Explanation | Debit | Credit | |
| 1) | Retained Earnings | 61875 | |
| Accumulated Depriciation | 48125 | ||
| Equipment | 110000 | ||
| (To record correcting entry) | |||
| Depriciation Expense for 2018 | |||
| Asset Cost corrected | 1864000 | ||
| Accumulated Depreciation | 815500 | ||
| Book Cost | 1048500 | ||
| Remaining Useful life (Years) | 6 | ||
| Depriciation Expense | 174750 | ||
| 2) | Depriciation Expense | 174750 | |
| Accumulated Depriciation | 174750 | ||
| (To record depreciation expense for 2018) | |||
ekkarill92 answered 2 years agoRelated Solutions
Collins Corporation purchased office equipment at the beginning of 2016 and capitalized a cost of $1,902,000....
Collins Corporation purchased office equipment at the beginning
of 2016 and capitalized a cost of $1,902,000. This cost figure
included the following expenditures:
Purchase price
$
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Freight
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21,000
Installation
charges
11,000
Annual
maintenance charge
110,000
Total
$
1,902,000
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No residual value is anticipated. The double-declining-balance
method was used to determine depreciation expense for 2016 and
2017.
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Installation charges
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Annual maintenance charge
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In 2021, after the 2020 financial statements were issued, the
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In 2021, after the 2020 financial statements were issued, the
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Purchase price
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Freight charges
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Installation charges
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Annual maintenance charge
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Total
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