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Chapter 22: Q11E. (page 1311)

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.)

Short Answer

Expert verified

Depreciation is debited, and accumulated depreciation is credited to record the journal entry for omission and method change. The sum of year method depreciation to record the omission is $90,000, and straight-line depreciation to record the depreciation of 2018 is $40,000.

Step by step solution

01

Calculation of Depreciation

Sum of year Method

Year

Digits

Depreciation

WDV

2015

10

100,000

450,000

2016

9

90,000

360,000

2017

8

80,000

280,000

2018

7

70,000

210,000

2019

6

60,000

150,000

2020

5

50,000

100,000

2021

4

40,000

60,000

2022

3

30,000

30,000

2023

2

20,000

10,000

2024

1

10,000

-

55

02

Journal Entry

Date

Particulars

Debit ($)

Credit ($)

Depreciation

90,000

Accumulated Depreciation- Equipment

90,000

(Being depreciation recorded for omission )

03

Straight Line depreciation

Depreciationexpense=WDVasonJan1,2018BalanceUsefulLife=280,00010-3=$40,000

Date

Particulars

Debit ($)

Credit ($)

Depreciation

40,000

Accumulated Depreciation- Equipment

40,000

(Being depreciation recorded for 2018)

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Most popular questions from this chapter

Which of the following is true regarding whether IFRS specifically addresses the accounting and reporting for effects of changes in accounting policies?

Direct effects Indirect effects

(a) Yes Yes

(b) No No

(c) No Yes

(d) Yes No

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.

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.

How should consolidated financial statements be reported this year when statements of individual companies were presented last year?

(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.
See all solutions

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