In: Accounting
Accounting Changes-Depreciation
Described below are two independent and unrelated situations
involving accounting
changes. Each change occurs during 2016 before any adjusting
entries or closing entries
were prepared.
a. On December 30, 2012, Rival Industries acquired its office
building at a cost of
$1,000,000. It was depreciated on a straight-line basis assuming a
useful life of 40
years and no salvage value. However, plans were finalized in 2016
to relocate the
company headquarters at the end of 2020. The vacated office
building will have a
salvage value at that time of $700,000.
b. At the beginning of 2013, the Hoffman Group purchased office
equipment at a cost of
$330,000. Its useful life was estimated to be 10 years with no
salvage value. The
equipment was depreciated by the sum-of-the years’-digits method.
On January 1,
2016, the company changed to the straight-line method.
Instructions:
a. Briefly describe the way company should report this accounting
change in the
financial statements.
b. Prepare any 2016 journal entry related to the change.