Question

On December 30, 2017, Rival Industries acquired its office building at a cost of $12,300,000. It has been depreciated on a straight-line basis assuming a useful life of 40 years and no residual value. Early in 2021, the estimate of useful life was revised to 28 years in total with no change in residual value.

At the beginning of 2017, the Hoffman Group purchased office equipment at a cost of $396,000. Its useful life was estimated to be 10 years with no residual value. The equipment has been depreciated by the straight-line method.

On January 1, 2021, the company changed to the double-declining-balance method.At the beginning of 2021, Jantzen Specialties, which uses the straight-line method, changed to the double-declining-balance method for newly acquired vehicles. The change decreased current year net income by $605,000.

1. 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.)

A. Record the entry necessary as a direct result of the change in situation a.

B. Record the adjusting entry for situation a.

c.Record the entry necessary as a direct result of the change in situation b.

D.Record the adjusting entry for situation b.

e. Record the entry necessary as a direct result of the change in situation c.

	Date General Journal Debit Credit 2021

Answer 1

1) On December 30, 2017, Rival Industries acquired its office building at a cost of $12,300,000. It has been depreciated on a straight-line basis assuming a useful life of 40 years and no residual value. Early in 2021, the estimate of useful life was revised to 28 years in total with no change in residual value.
a) Record journal entry as a direct result of the change.
No entry
b) Record adjusting entry for depreciation.
Depreciation expense	$     455,100.00
Accumulated depreciation		$455,100.00
Initial cost of building	$12,300,000.00
Old depreciation ($12,300,000 ÷ 40 years) = $307500
Depreciation to date (2018-2020) = $307500 x 3years	$     922,500.00
Undepreciated cost	$11,377,500.00
Estimated remaining life(25 years: 2020–2057)	25	years
3 years has passed remaining 25 years
New annual depreciation = $11,377,500/25 years	$     455,100.00
2)At the beginning of 2017, the Hoffman Group purchased office equipment at a cost of $396,000. Its useful life was estimated to be 10 years with no residual value. The equipment has been depreciated by the straight-line method.On January 1, 2021, the company changed to the double-declining-balance method.
a) Record journal entry as a direct result of the change.
No Entry
b)Record adjusting entry for depreciation.
Depreciation expense	$       47,520.00
Accumulated depreciation		$  47,520.00
Initial cost of Equipment	$     396,000.00
Old depreciation ($396,000 ÷ 10 years) = $39600
Depreciation to date (2018-2020) = $39600 x 4 years	$     158,400.00
Undepreciated cost	$     237,600.00
Year	Beginning Book Value	DDB Rate	DDB Depreciation	Accumulated Depreciation	Ending Book Value
2021	$     237,600.00	20%	$ 47,520.00	$  47,520.00	$ 190,080.00
2022	$     190,080.00	20%	$ 38,016.00	$  85,536.00	$ 152,064.00
2023	$     152,064.00	20%	$ 30,412.80	$115,948.80	$ 121,651.20
2024	$     121,651.20	20%	$ 24,330.24	$140,279.04	$   97,320.96
2025	$       97,320.96	20%	$ 19,464.19	$159,743.23	$   77,856.77
2026	$       77,856.77	20%	$ 15,571.35	$175,314.59	$   62,285.41
3)
Record the entry necessary as a direct result of the change in situation c
No Entry
Because the change will be effective only for assets placed in service after the date of change, depreciationschedules do not require revision because the change does not affect assets depreciated in prior periods.A disclosurenote still is required to provide justification for the change and to report the effect of the change on current year’s income