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Chapter 22: Q14E. (page 1311)

Gerald Englehart Industries changed from the double-declining-balance to the straight-line method in 2018 on all its equipment. There was no change in the assets’ salvage values or useful lives. Plant assets, acquired on January 2, 2015, had an original cost of \(1,600,000, with a \)100,000 salvage value and an 8-year estimated useful life. Income before depreciation expense was \(270,000 in 2017 and \)300,000 in 2018.

Instructions (a) Prepare the journal entry(ies) to record depreciation expense in 2018.

(b) Starting with income before depreciation expense, prepare the remaining portion of the income statement for 2017 and 2018.

Short Answer

Expert verified

Depreciation is debited, and accumulated depreciation is credited by $115,000 to record the depreciation of 2018. The net income in 2017 is $45,000 and in 2018 is $185,000.

Step by step solution

01

Journal entry for Part A

Bookvalue=Cost×(1-DDRate)N=1,600,000×(1-0.25)3=$675,000DepreciationexpenseSLM=Bookvalue-SalvagevalueRemainingusefullife=675,000-100,0005=$115,000

Date

Particulars

Debit ($)

Credit ($)

Depreciation expense

115,000

Accumulated Depreciation

115,000

(Being depreciation expenses recorded)

02

Extract of income Statement

2017 ($)

2018 ($)

Income Before depreciation

270,000

300,000

Less: Depreciation

-225,000

-115,000

Net Income

45,000

185,000

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Most popular questions from this chapter

Which of the following is not classified as an accounting change by IFRS?

(a) Change in accounting policy.

(b) Change in accounting estimate.

(c) Errors in financial statements.

(d) None of the above

(Error Analysis) When the records of Debra Hanson Corporation were reviewed at the close of 2018, the following errors were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2017 and 2018.

2017 2018 Over- Under- No Over- Under- No Item statement statement Effect statement statement Effect

1. Failure to record amortization of patent in 2018.

2. Failure to record the correct amount of ending 2017 inventory. The amount was understated because of an error in calculation.

3. Failure to record merchandise purchased in 2017. Merchandise was also omitted from ending inventory in 2017 but was not yet sold.

4. Failure to record accrued interest on notes payable in 2017; that amount was recorded when paid in 2018.

5. Failure to reflect supplies on hand on the balance sheet at end of 2017.

If a company registered with the SEC justifies a change in accounting method as preferable under the circumstances, and the circumstances change, can that company switch back to its prior method of accounting before the change? Why or why not?

(Change in Estimate—Depreciation) Peter M. Dell Co. purchased equipment for \(510,000 which was estimated to have a useful life of 10 years with a salvage value of \)10,000 at the end of that time. Depreciation has been entered for 7 years on a straight-line basis. In 2018, it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time.

Instructions (a) Prepare the entry (if any) to correct the prior years’ depreciation.

(b) Prepare the entry to record depreciation for 2018

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?
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