Question

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.

1. On December 30, 2017, Rival Industries acquired its office building at a cost of $12,000,000. 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.
2. At the beginning of 2017, the Hoffman Group purchased office equipment at a cost of $275,000. 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.
3. 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 $645,000

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.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

No	Date	General Journal	Debit	Credit
1	2021	No journal entry required
2	2021	Depreciation expense
		Accumulated depreciation

Answer 1

1
Date	General Journal	Debit	Credit
2021	No journal entry required
2021	Depreciation expense	$444,000
	Accumulated depreciation		$444,000
	Cost	$12,000,000
	Less: Depreciation to date (2018–2020)
	($12,000,000 ÷ 40 years) x 3 yrs	$900,000
	Undepreciated cost	$11,100,000
	Estimated remaining life (25 years: 2021–2045)	25 years
	New annual depreciation	$444,000
2
Date	General Journal	Debit	Credit
2021	Depreciation expense	$72,679
	Accumulated depreciation		$72,679
	Cost	$275,000
	Less: Depreciation to date (2018–2020)
	($275,000 ÷ 10 years) x 3 yrs	$20,625
	undepreciated cost	$254,375
	Depreciation Percent - 28.57143%	$72,679
3
	This is a change in accounting principle accounted for as a change in estimate
	Because the change will be effective only for assets placed in service after the date of
	change, depreciation schedules do not require revision because the change does not affect
	assets depreciated in prior periods