Question

In: Accounting

Collins Corporation purchased office equipment at the beginning of 2011 and capitalized a cost of $1,972,000....

Collins Corporation purchased office equipment at the beginning of 2011 and capitalized a cost of $1,972,000. This cost figure included the following expenditures:
  Purchase price $ 1,810,000
  Freight charges 26,000
  Installation charges 16,000
  Annual maintenance charge 120,000
       Total $ 1,972,000

The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2011 and 2012.
REQUIRED:

1. Ignoring taxes, prepare the appropriate correcting entry for the equipment capitalization error.

2. Ignoring income taxes, prepare any journal entries related to the change in depreciation methods.

Solutions

Expert Solution

Part 1:-

Depreciation Recorded: DDB = 2 x (1 ÷ 8) = 25%
2011 – 25% x 1,972,000 = $493,000
2012 – 25% x (1,972,000 – 493,000) = $369,750

Correct Depreciation:
2011 – 25% x 1,852,000 = $463,000
2012 – 25% x (1,852,000 – 463,000) = $347,250

Entries Made                                                                                              

2011 Equipment 1,972,000

            Cash                 1,972,000

2011 depriciation exp    493,000

            Acc Dep.                 493,000

2012 Depriciation exp 375,000

            Acc Dep.                  375,000

      

Proper Entries   

2011 Equipment 1,852,000

        Expenses       120,000

            Cash                 1,972,000

2011 Depriciation exp    463,000

            Acc Dep.                 463,000

2012 Depriciation exp 347,250

            Acc Dep.                  347,250

Equipment overstated by 120,000; R/E overstated by 120,000

Excess depreciation = (493,000 + 375,000) – (463,000 + 347,250) = 57,750

R/E understated by 57,750; Acc Dep’n overstated by 57,750
R/E (120,000 – 57,750)                     62,250
Accumulated depreciation                 57,750
Equipment                                                    120,000

Part 2:-

The change in depreciation method is treated as a change in estimate.
2013 Book value = [1,852,000 – (463,000 + 347,250)] = $1,041,750
Residual value = $0
Remaining life = 6 years (8 – 2)
Straight-line depreciation = 1,041,750 ÷ 6 = $173,625
Depreciation expense                            173,625
Accumulated depreciation                                   173,625

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

The Collins Corporation purchased office equipment at the beginning of 2019 and capitalized a cost of...
The Collins Corporation purchased office equipment at the beginning of 2019 and capitalized a cost of $2,200,000. This cost included the following expenditures: Purchase price $ 1,960,000 Freight charges 42,000 Installation charges 32,000 Annual maintenance charge 166,000 Total $ 2,200,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2019 and 2020. In 2021, after the 2020 financial statements were issued, the company decided...
The Collins Corporation purchased office equipment at the beginning of 2019 and capitalized a cost of...
The Collins Corporation purchased office equipment at the beginning of 2019 and capitalized a cost of $2,308,000. This cost included the following expenditures: Purchase price $ 2,020,000 Freight charges 48,000 Installation charges 38,000 Annual maintenance charge 202,000 Total $ 2,308,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2019 and 2020. In 2021, after the 2020 financial statements were issued, the company decided...
The Collins Corporation purchased office equipment at the beginning of 2019 and capitalized a cost of...
The Collins Corporation purchased office equipment at the beginning of 2019 and capitalized a cost of $2,344,000. This cost included the following expenditures: Purchase price $ 2,040,000 Freight charges 50,000 Installation charges 40,000 Annual maintenance charge 214,000 Total $ 2,344,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2019 and 2020. In 2021, after the 2020 financial statements were issued, the company decided...
Collins Corporation purchased office equipment at the beginning of 2016 and capitalized a cost of $1,902,000....
Collins Corporation purchased office equipment at the beginning of 2016 and capitalized a cost of $1,902,000. This cost figure included the following expenditures: Purchase price $ 1,760,000 Freight charges 21,000 Installation charges 11,000 Annual maintenance charge 110,000 Total $ 1,902,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2016 and 2017. In 2018, after the 2017 financial statements were issued, the company decided...
Collins Corporation purchased office equipment at the beginning of 2016 and capitalized a cost of $1,974,000....
Collins Corporation purchased office equipment at the beginning of 2016 and capitalized a cost of $1,974,000. This cost figure included the following expenditures: Purchase price $ 1,820,000 Freight charges 27,000 Installation charges 17,000 Annual maintenance charge 110,000 Total $ 1,974,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2016 and 2017. In 2018, after the 2017 financial statements were issued, the company decided...
Collins Corporation purchased office equipment at the beginning of 2019 and capitalized a cost of $2,072,000....
Collins Corporation purchased office equipment at the beginning of 2019 and capitalized a cost of $2,072,000. This cost figure included the following expenditures: Purchase price $ 1,910,000 Freight charges 36,000 Installation charges 26,000 Annual maintenance charge 100,000 Total $ 2,072,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2019 and 2020. In 2021, after the 2020 financial statements were issued, the company decided...
The Earland Corporation purchased equipment at the beginning of 20x7 and capitalized a cost of $2,000,000....
The Earland Corporation purchased equipment at the beginning of 20x7 and capitalized a cost of $2,000,000. This cost included the following expenditures: Purchase price $1,850,000 Freight charges 30,000 Installation charges 20,000 Annual maintenance charge 100,000 Total=$2,000,000 The company equipment is being depreciated at a diminishing balance rate of 15% with no residual value. In 20x9, after the 20x8 financial statements were issued, the company decided to switch to the straight-line method of depreciation to reflect a change in the expected...
Alteran Corporation purchased office equipment for $1.7 million at the beginning of 2019. The equipment is...
Alteran Corporation purchased office equipment for $1.7 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 $800,000. At the beginning of 2021 (two years later), Alteran decided to change to the straight-line depreciation method for this equipment. 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...
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...
Problem 20-11 Error correction; change in depreciation method [LO20-6] The Collins Corporation purchased office equipment at...
Problem 20-11 Error correction; change in depreciation method [LO20-6] The Collins Corporation purchased office equipment at the beginning of 2016 and capitalized a cost of $2,180,000. This cost included the following expenditures: Purchase price $ 1,970,000 Freight charges 42,000 Installation charges 32,000 Annual maintenance charge 136,000 Total $ 2,180,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2016 and 2017. In 2018, after...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT