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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

Joy Cunningham Co. purchased a machine on January 1, 2015, for $550,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2018, the firm’s accountant found that the entry for depreciation expense had been omitted in 2016. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2018. At present, the company uses the sum-of-the-years’-digits method for depreciating equipment. Instructions Prepare the general journal entries that should be made at December 31, 2018, to record these events. (Ignore tax effects.)

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?

(Error Analysis and Correcting Entry) The reported net incomes for the first 2 years of Sandra Gustafson Products, Inc., were as follows: 2017, \(147,000; 2018, \)185,000. Early in 2019, the following errors were discovered.

1. Depreciation of equipment for 2017 was overstated \(17,000.

2. Depreciation of equipment for 2018 was understated \)38,500.

3. December 31, 2017, inventory was understated \(50,000.

4. December 31, 2018, inventory was overstated \)16,200.

Instructions

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.)

What is the indirect effect of a change in accounting policy? Briefly describe the approach to reporting the indirect effects of a change in accounting policy under IFRS.

(Change in Principle, Estimate) As a certified public accountant, you have been contacted by Joe Davison, CEO of Sports-Pro Athletics, Inc., a manufacturer of a variety of athletic equipment. He has asked you how to account for the following changes.

1. Sports-Pro appropriately changed its depreciation method for its machinery from the double-declining-balance method to the units-of-production method effective January 1, 2017.

2. Effective January 1, 2017, Sports-Pro appropriately changed the salvage values used in computing depreciation for its office equipment.

3. On December 31, 2017, Sports-Pro appropriately changed the specific subsidiaries constituting the group of companies for which consolidated financial statements are presented.

Instructions

Write a 1–1.5 page letter to Joe Davison explaining how each of the above changes should be presented in the December 31, 2017, financial statements.
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