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Chapter 22: 22-4BE (page 1307)

Tedesco Company changed depreciation methods in 2017 from double-declining-balance to straight-line. Depreciation prior to 2017 under double-declining-balance was \(90,000, whereas straight-line depreciation prior to 2017 would have been \)50,000. Tedesco’s depreciable assets had a cost of \(250,000 with a \)40,000 salvage value, and an 8-year remaining useful life at the beginning of 2017. Prepare the 2017 journal entries, if any, related to Tedesco’s depreciable assets

Short Answer

Expert verified

Depreciation expense is calculated as $15,000. Depreciation expense is debited by $15,000, and accumulated depreciation is credited by $15,000.

Step by step solution

01

Calculation of depreciation

Depreciablebase=Cost-Accumulateddepreciation-Salvagevalue=250,000-90,000-40,000=$120,000Depreciationin2017=DepreciablecostNumberofyears=120,0008=$15,000
02

Journal Entry

Date

Particulars

Debit ($)

Credit ($)

2017

Depreciation Expense

15,000

Accumulated Depreciation

15,000

(Being depreciation expense recorded)

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Most popular questions from this chapter

On January 2, 2017, \(100,000 of 11%, 10-year bonds were issued for \)97,000. The $3,000 discount was charged to Interest Expense. The bookkeeper, Mark Landis, records interest only on the interest payment dates of January 1 and July 1. What is the effect on reported net income for 2017 of this error, assuming straight-line amortization of the discount? What entry is necessary to correct for this error, assuming that the books are not closed for 2017?

In January 2017, installation costs of \(6,000 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of \)30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no salvage value. At December 31, 2018, it is decided that the machinery has a remaining useful life of 20 years, starting with January 1, 2018. What entry(ies) should be made in 2018 to correctly record transactions related to machinery, assuming the machinery has no salvage value? The books have not been closed for 2018 and depreciation expense has not yet been recorded for 2018.

Which of the following is false?

(a) GAAP and IFRS have the same absolute standard regarding the reporting of error corrections in previously issued financial statements.

(b) The accounting for changes in estimates is similar between GAAP and IFRS.

(c) Under IFRS, the impracticability exception applies both to changes in accounting principles and to the correction of errors.

(d) GAAP has detailed guidance on the accounting and reporting of indirect effects; IFRS does not.

Parsons Inc. has proposed a change from one inventory accounting method to another for financial reporting purposes. The auditor indicates that a change would be permitted only if it is to a preferable method. What difficulties develop in assessing preferability?

A partial trial balance of Julie Hartsack Corporation is as follows on December 31, 2018.

Dr. Cr.

Supplies \( 2,700

Salaries and wages payable \) 1,500

Interest receivable 5,100

Prepaid insurance 90,000

Unearned rent –0–

Interest payable 15,000

Additional adjusting data:

1. A physical count of supplies on hand on December 31, 2018, totaled \(1,100.

2. Through oversight, the Salaries and Wages Payable account was not changed during 2018. Accrued salaries and wages on December 31, 2018, amounted to \)4,400.

3. The Interest Receivable account was also left unchanged during 2018. Accrued interest on investments amounts to \(4,350 on December 31, 2018.

4. The unexpired portions of the insurance policies totaled \)65,000 as of December 31, 2018.

5. \(28,000 was received on January 1, 2018, for the rent of a building for both 2018 and 2019. The entire amount was credited to rent revenue.

6. Depreciation on equipment for the year was erroneously recorded as \)5,000 rather than the correct figure of \(50,000.

7. A further review of depreciation calculations of prior years revealed that equipment depreciation of \)7,200 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.

Instructions

(a) Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2018? (Ignore income tax considerations.)

(b) Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2018? (Ignore income tax considerations.)

(c) Repeat the requirements for items 6 and 7, taking into account income tax effects (40% tax rate) and assuming that the books have been closed.
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