Question

Described below are three independent and unrelated situations involving accounting changes. Each change occurs during 2018 before any adjusting entries or closing entries are prepared.

On December 30, 2014, Rival Industries acquired its office building at a cost of $10,200,000. It has been depreciated on a straight-line basis assuming a useful life of 40 years and no residual value. Early in 2018, the estimate of useful life was revised to 28 years in total with no change in residual value.

At the beginning of 2014, the Hoffman Group purchased office equipment at a cost of $385,000. Its useful life was estimated to be 10 years with no residual value. The equipment has been depreciated by the sum-of-the-years’-digits method. On January 1, 2018, the company changed to the straight-line method.

At the beginning of 2018, Jantzen Specialties, which uses the sum-of-the-years’-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net income by $465,000.

Required:

1. Identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change as well as any adjusting entry for 2018 related to the situation described. (Ignore income tax effects.)

Answer 1

Part A
Type of Change			change in estimate
Journal entry should not Require recording this change.
Cost			10,200,000
accumulated Depreciation for Three Years ((10,200,000/40)*3)			765000
Book value at end of three years			9,435,000
Divided by: Remaining useful life (28-3)			25
Depreciation per year			377,400
Date	General Journal	Debit	Credit
Dec 31, 2018	Depreciation expense - office building	377,400
	Accumulated depreciation - office building		377,400
Part B
Type of Change	change in accounting principle (result in to Change in Estimate)
Sum of 1 to 10 = 55
Depreciation under sum-of-the-years’-digits method
Year 2014	70000	385000*10/55
Year 2015	63000	385000*9/55
Year 2016	56000	385000*8/55
Year 2017	49000	385000*7/55
Total Accumulated depreciation	238000
Cost of office equipment			385000
Less: accumulated Depreciation (as above)			238000
Book value at end of Four years			147000
Less: Salvage Value			0
Depreciable cost			147000
Divided by: Remaining useful life (10-4)			6
Depreciation per year			24,500
Date	General Journal	Debit	Credit
Dec 31, 2018	Depreciation expense - office equipment	24,500
	Accumulated depreciation - office equipment		24,500
Part C
Type of Change	change in accounting principle (result in to Change in Estimate)
There are no adjustment entries and Journal entries required Because the change will be effective only for New assets placed in service after the date of change Method.
I mean Depreciable Schedule should not change for Assets placed in Prior period of assets.