Bailand Company purchased a building for $148,000 that had an estimated residual
ID: 2328905 • Letter: B
Question
Bailand Company purchased a building for $148,000 that had an estimated residual value of $8,000 and an estimated service life of 10 years. Bailand purchased the building 4 years ago and has used straight-line depreciation. At the beginning of the fifth year (before it records depreciation expense for the year), the following independent situations occur:
1. Bailand estimates that the asset has 8 years’ life remaining (for a total of 12 years). 2. Bailand changes to the sum-of-the-years’-digits method. 3. Bailand discovers that the estimated residual value has been ignored in the computation of depreciation expense. Bailand estimates that the asset has 8 years' life remaining (for a total of 12 years). Prepare the journal entry on December 31 to record depreciation in the fifth year after the change in estimate. Ignore income taxes PAGE 16 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF DEBIT CREDIT Prepare the journal entry on December 31 to record depreciation in the fiith year after the change in depreciation method. Additionsl Instruction FAGE 16 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF DESIT CREDIT Prepare the journal entries on December 31 to record the prior period adjustment for the error and depreciation in the fifth year. Ignore income taxes. Additiona Instruction PAGE 16 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDITExplanation / Answer
Purchase Value of Building = $ 1,48,000 Less: Residual Value $ 8,000 Value for the depreciationi $ 1,40,000 Divide by "/" bY Life of the Building 10 year Depreciation per year ($140,000/ 10 Years ) $ 14,000 Note: 1 Calcualtion of the book value at the beginning of 5th year Purhcases value = $ 1,48,000 Less: Depreciation for 4 year =($ 14,000 X 4) $ 56,000 Opening Book Value = $ 92,000 Divide by "/" bY Pending Life of the Building 8 year Depreciation per year for balance period ($92,000/ 8 Years ) $ 11,500 Note: 2: Calculation of depreciation as per sum of the year digist method Calcualtion of the book value at the beginning of 5th year Purhcases value = $ 1,48,000 Less: Depreciation for 4 year =($ 14,000 X 4) $ 56,000 Opening Book Value = $ 92,000 Divide by "/" bY Total of balance of sum of year (1+2+3+4+5+6)= 21 Value of one Digit = $ 4,381 Depreciation for the 5 year = ($ 4,381 X 6) = $ 26,286.00 Note: 3: Calculation of depreciation assuming there is no residual value Calcualtion of the book value at the beginning of 5th year Purhcases value = $ 1,48,000 Less: Depreciation for 4 year =($ 14,000 X 4) $ 56,000 Opening Book Value for fifth year= $ 92,000 Divide by "/" bY Pending Life of the Building 6 year Depreciation per year ($92,000/ 6 Years ) $ 15,333.33 Situation 1: Journal Entries Date Account Title and explanation Debit Credit Depreciation $ 11,500 Dec 31, Year 5 To Building $ 11,500 (To Record the depreciation expesnes of the year) Situation 2: Journal Entries Date Account Title and explanation Debit Credit Depreciation $ 26,286 Dec 31, Year 5 To Building $ 26,286 (To Record the depreciation expesnes of the year) Situation 3: Journal Entries Date Account Title and explanation Debit Credit Depreciation $ 15,333 Dec 31, Year 5 To Building $ 15,333 (To Record the depreciation expesnes of the year)
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