Question

In: Accounting

On January 1, 2016, the Harold Company purchased equipment at a cost of $400,000. The equipment...

On January 1, 2016, the Harold Company purchased equipment at a cost of $400,000. The equipment was expected to have a service life of 10 years and a $20,000 residual value. The company’s fiscal year-end is December 31, and the double-declining balance (DDB) depreciation method is used. During 2018, the company switched from the DDB to the straight-line method. In 2018, the adjusting entry to depreciation expense is:

a. $22,500

b. $29,500

c. $31,625

d. $44,775

Expert Solution

Double declining balance is calculated using this formula:

= Net book Value * (2/ Useful life in years)

For the Year ending 2016 total depreciation = $400,000 * (2/10 years)

= $ 80,000

For the year ending 2017 total depreciation = ($400,000 - $80,000) * (2/10 years)

= $ 320,000 * (2/10 years)

= $ 64,000

During the year the Method of depreciation was changed from Double declining balance to straight-line method.

Undepreciated cost as on 01-01-2018 = $400,000- $ 80,000 - $ 64,000

= $ 256,000

Depreciation base amount = $256,000 - $20,000( Residual cost)

= $ 236,000

Value for annual depreciation for Remaining 8 years = $ 236,000

Annual depreciation for the remaining period of 8 years under straight line method = $ 236,000/ 8 years

= $ 29,500.

Answer : Option (b)

ekkarill92 answered 1 year ago

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