In: Accounting
Described below are three independent and unrelated situations
involving accounting changes. Each change occurs during 2021 before
any adjusting entries or closing entries are prepared.
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 2021
related to the situation described. (Ignore income tax
effects.)
Answer :-
A. Rival Industries :-
Calculation of Annual Dericiation after Estimate change | |
Cost of the Building | 10,500,000 |
Use full life Original | 40 |
Annual Depriciaption | 2,62,500 |
UnDepriciated Cost | 10237500 |
Revised Usefull life | 28 Years |
Estimate Remaining Life 28 - 3 Years | 25 Years |
New Anual Depriciation 10237500 / 25 | 409500 |
Depriciation Expense DR. | 409500 | |
To Accumulated Depriciation CR. | 409500 |
B. Hoffman Group :-
on Begingin of Jan ,2017
Cost of Equipment = $ 5,40,000
usefull life = 10 years
STRAIGHT LINE METHOD |
Annual Depriciation = $ 5,40,00 / 10 = $ 54,000
Accumalated SLM Depriciation afte 4 years = $ 54,000 * 4 =
$2,16,000
SLM Book Value after 4 year 2021 = $ 5,40,000 - $ 2,16,000 = $
3,24,000
Double Declining Balance |
SLM Rate each year = 10%
so that DDB rate = 20%
YEAR | Begininng Book Value | DDB RATE | DDB DEPRICIATION | Accumulated Depriciation | Ending Book Value |
2017 | 540000 | 20% | 108000 | 108000 | 432000 |
2018 | 432000 | 20% | 86400 | 194400 | 345600 |
2019 | 345600 | 20% | 69120 | 263520 | 276480 |
2020 | 276480 | 20% | 55296 | 318816 | 221184 |
The DDB method at the end of 2020 on Jan 1 2021 is = $3,18,816 - 2,16,000 = $1,02,816
if the company had used DDB Method throught depriciation in
prior years would have been 102816 heigher
means some net income reported in prior years would have 102816
lower, retaining earning to $ 1,02,816 lower
so that Retaining account must be reduce and the accumalated
depriciation accout mus be incured.
Journal Entry requie as per above Changes :
Retained Earning A/C. DR. | $1,02,816 | |
Accumlated Depriciation CR. | $1,02,816 |
Depriciation Expense DR. | $44,236 | |
To Accumulated Depriciation CR. | $44,236 |
DDB Depriciation For 2020 : - 2,211,84 * 20% = 44,236
C. Jantzen Specialties :-