1A) On January 1, 2014, Garr Company acquired machinery at a cost of $320,000 The machinery...

1A) On January 1, 2014, Garr Company acquired machinery at a cost of $320,000 The machinery was being depreciated using the double declining balance method. It had an estimated useful life of 8 years and no residual value. At the beginning of 2016, Garr changed to the straight-line method of depreciation. Prepare any journal entry required to account for this change.

1B) Gundrum Inc. purchased equipment on January1, 2012 for $850,000. The equipment was expected to have a useful life of 10 years and a salvage value of $30,000. Gundrum uses the straight line method of depreciation. At the beginning of 2017, Gundrum determined that the total estimated life of the equipment was 13 years and that the residual value would be $10,000. Prepare the journal entry necessary to account for this change.

Expert Solution



1(A)	As per ASC 250, change in method of depreciation a 'change in principle', hence the company should account such changes restropectively.

	Date of purchase	01-Jan-14
	Cost	$320,000

	Double declining balance method
	Depreciation rate	25%
	Depreciation year 2014	$80,000
	Depreciation year 2015	$60,000
	Book value at end of 2015	$180,000

	If straight line method would have been adoped
	Depreciation rate	12.50%
	Depreciation year 2014	$40,000
	Depreciation year 2015	$40,000
	Book value at end of 2015	$240,000

	Journal entry
	Accumulated depreciation a/c dr	$60,000
	To, Retained earnings		$60,000
	(Being retrospective change accounted)




1(B)	Change in useful life or salvage value in the asset is a change in accounting estimate , hence company should account such changes prospectively.

	Cost of equipment(2012)	$850,000
	Original useful life	10 years
	Original salvage value	$30,000

	Depreciation for 2012 to 2016	$410,000	(850,000-30,000)/10*5
	Book value at beginning of 2017	$440,000

	New remaining useful life	8	(13-5)
	New salvage value	$10,000

	New depreciation per year	$50,000	(410,000-10,000)/8

	Journal entry
	(No Journal entries are required for such changes)

	Journal entries for depreciation per year would be passed at the end of each year for amount $50,000

ekkarill92 answered 1 year ago

Equipment was acquired on January 1, 2014, at a cost of $170,000. The equipment was originally...

Equipment was acquired on January 1, 2014, at a cost of $170,000. The equipment was originally estimated to have a salvage value of $10,000 and an estimated life of 10 years. Depreciation has been recorded through December 31, 2016, using the straight-line method. On January 1, 2017, the estimated salvage value was revised to $16,000 and the useful life was revised to a total of 8 years. Determine the depreciation expense for 2017.

On January 1, 2017, Nobel Corporation acquired machinery at a cost of $1,200,000. Nobel adopted the...

On January 1, 2017, Nobel Corporation acquired machinery at a cost of $1,200,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2020, a decision was made to change the residual value to $100,000. The amount that Nobel should record as depreciation expense for 2020 is

On January 2, 2014, Able Company acquired new equipment at a cost of $290,000. The machine...

On January 2, 2014, Able Company acquired new equipment at a cost of $290,000. The machine has an estimated useful life of 5 years, or 25,000 operating hours, after which it will have an estimated residual value of $15,000. Compute the depreciation charges for the first two years (2014 and 2015), using the following methods. (Show all computations). a. Straight-line b. Units-of-production (Equipment was used 8,000 hours during 2014 and 7,000 hours during 2015.) c. Double-declining balance

The Nathan Company acquired all of the outstanding stock of Caleb Company on January 1, 2014...

The Nathan Company acquired all of the outstanding stock of Caleb Company on January 1, 2014 for P267,800 cash. Caleb had a book value of only P182,000 on that date. However, equipment (having an eight-year life) is undervalued by P52,000 on Caleb’s financial records. A building with a 20-year life was overvalued by P13,000. Subsequent to the acquisition, Caleb reported the following: Net Income Dividends Paid 2014 P 65,000 P 13,000 2015 78,000 52,000 2016 39,000 26,000 In accounting for...

Assume that a parent company acquired 80% of a subsidiary on January 1, 2014. The purchase...

Assume that a parent company acquired 80% of a subsidiary on January 1, 2014. The purchase price was $175,000 in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned entirely to an unrecorded Patent owned by the subsidiary. The assumed economic useful life of the patent is 10 years. Assume that subsidiary sells inventory to the parent. The parent, ultimately, sells the inventory to customers outside of the consolidated group. You...

Phillips Machinery Corporation purchased machinery for cash of $60,000 on January 1, 2014. The machine has...

Phillips Machinery Corporation purchased machinery for cash of $60,000 on January 1, 2014. The machine has an estimated useful life of 5 years and will be depreciated using the straight-line method with no salvage value. The machine was then leased to Roadway Company an 80% owned subsidiary under a 5-year operating lease for $15,000 per year, payable January 1, every year. Required 1. Record the 2014 entries for the purchase of the machine and the lease to Roadway Company on...

Anxious Company acquired three items of machinery. * On January 1, 2017, the entity purchased a...

Anxious Company acquired three items of machinery. * On January 1, 2017, the entity purchased a machine for 500,000 down and four monthly installments of 1,250,000. The cash price of the machine was 4,700,000. * On December 31, 2017, the entity purchased a machine in exchange for a noninterest bearing note requiring ten payments of 500,000. The first payment was made on December 31, 2018, and the others are due annually on December 31. The prevailing rate of interest for...

On January 1, 2014, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company...

On January 1, 2014, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,290,800 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $1,570,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $264,000. On January 1, 2015, Palka acquired an additional...

On January 1, 2014, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing,...

On January 1, 2014, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,600,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $910,000, retained earnings of $460,000, and a noncontrolling interest fair value of $400,000. Corgan attributed the excess of fair value over Smashing’s book value to various covenants with a 20-year life. Corgan uses the equity method to account for its investment in Smashing. During...

Allen Company acquired 100 percent of Bradford Company’s voting stock on January 1, 2014, by issuing...

Allen Company acquired 100 percent of Bradford Company’s voting stock on January 1, 2014, by issuing 10,000 shares of its $10 par value common stock (having a fair value of $15 per share). As of that date, Bradford had stockholders’ equity totaling $106,800. Land shown on Bradford’s accounting records was undervalued by $13,200. Equipment (with a five-year remaining life) was undervalued by $9,600. A secret formula developed by Bradford was appraised at $20,400 with an estimated life of 20 years....

Question