Question

Flounder Company is in the process of preparing its financial statements for 2017. Assume that no entries for depreciation have been recorded in 2017. The following information related to depreciation of fixed assets is provided to you.

		1)Flounder purchased equipment on January 2, 2014, for $76,900. At that time, the equipment had an estimated useful life of 10 years with a $4,900 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2017, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $3,100 salvage value.
		2)During 2017, Flounder changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $280,000. It had a useful life of 10 years and a salvage value of $28,000. The following computations present depreciation on both bases for 2015 and 2016.

		2016		2015
Straight-line		$25,200		$25,200
Declining-balance		44,800		56,000

3)Flounder purchased a machine on July 1, 2015, at a cost of $110,000. The machine has a salvage value of $16,000 and a useful life of 8 years. Flounder’s bookkeeper recorded straight-line depreciation in 2015 and 2016 but failed to consider the salvage value. Prepare the journal entries to record depreciation expense for 2017 and correct any errors made to date related to the information provided. (Ignore taxes.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Show comparative net income for 2016 and 2017. Income before depreciation expense was $280,000 in 2017, and was $310,000 in 2016. (Ignore taxes.)

Answer 1

Journal Entry (in $)
Date	Particular	Debit	Credit
	Depreciation Expense- Equipment	11,825.00
	To Accumulated Depreciation (w/N-1)		11,825.00
	Being Depreciation Expense Recorded
	Accumulated Depreciation (W/N-2)	50,400.00
	Depreciation Expense- Building		50,400.00
	Being Excess Depreciation written off
	Depreciation Expense-Machine	11,750.00
	To Accumulated Depreciation (W/N-3)		11,750.00
	Being Depreciation Expense Recorded
	Accumulated Depreciation	3,000.00
	Depreciation Expense- Building		3,000.00
	Being Excess Depreciation written off

Income Statement (in $)
		2017	2016
	EBIT & Depreciation	280000	310000
	Less: Depreciation expense
	Equipment	-11825
	Building	50400
	Machine	-11750	3000
	Net Income	306825	313000

Working Note-1
1. Calculation of Book Value of Equiment
Cost of Equipment on 2/01/2014		76900
(-) Salvage Value		-4900
Net Carying Vallue		72000
Useful Life		10 year
Depreciation Expense {Per Year)		7200
Depreciation Expense for three year		21600
BooK Value after 3 year ( 72000-21600)		50400
Now New Depreciation (50400-3100)/4		11825

2)
Dep as per SLM ($44800+56000)		50400
Depreciation Expense as per DDM
2015	44800
2016	56000	100800
Excess Depreciation charged		-50400

3)
Depreciation for 2018
Cost of Machine	$110000
Salvage Value	$16000
Depreciation Per Annum(110000-16000)/8	11750
Depreciation Per Annum Charged ($110000/8)	$13750
Depreciation for 2016 ($13750/2)	6875
Depreciation Charge tiill 2017	20625
Depreciation to be charged , if salvage considered	$17625
($11750*1.5 Year)