Alteran Corporation purchased office equipment for $1.9 million at the beginning of 2019. The equipment is...

Alteran Corporation purchased office equipment for $1.9 million at the beginning of 2019. The equipment is being depreciated over a 10-year life using the double-declining-balance method. The residual value is expected to be $400,000. At the beginning of 2021 (two years later), Alteran decided to change to the straight-line depreciation method for this equipment.

Required:
Prepare the journal entry to record depreciation for 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars.)

Solutions

Expert Solution

First we will calculate the depreciation for 2019 to 2021 by double declining balance method.

Under double declining balance method, depreciation is calculated by the following formula:

Depreciation = 2 * 1 / N * (Cost - Accumulated depreciation)

where, n is the no. of years or useful life and accumulated depreciation is depreciation charged till date

For first year i.e. 2019, accumulated depreciation will be zero.

So, depreciation for first year 2019 will be:

Depreciation for 2019 = 2 * 1 / 10 * ($1900000 - 0)

Depreciation = 2 * 1 / 10 * $1900000 = $380000

Now, in 2020, accumulated depreciation will be $380000 (i.e. depreciation charged till date is depreciation for 2019)

Depreciation for 2020 will be:

Depreciation = 2 * 1 / 10 * ($1900000 - $380000) = 2 * 1 / 10 * $1520000 = $304000

Now, in 2021, accumulated depreciation will be $684000 (i.e. depreciation charged till date is depreciation for 2019 & 2020 which is $380000 + $304000)

Now,

Book value of the equipment at the beginning of 2021 is:

Book value = Cost - Accumulated depreciation

Book value = $1900000 - $684000

Book value = $1216000

Now, we will use the straight line method from 2021 onwards.

Under the straight line method, depreciation is calculated by the following formula:

Depreciation = Book value - Residual value / Remaining useful life

Book value = $1216000, Residual value = $400000, useful life = 8

Depreciation = ($1216000 - $400000) / 8 = $102000

Under straight line method, depreciation remains the same for every year. So depreciation for 2021 and thereafter will be same i.e. $102000.

Journal entry for depreciation expense in 2021 will be:

Debit Depreciation expense $102000

Credit Accumulated depreciation $102000

ekkarill92 answered 11 months ago

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