On 1/1/08, Powell Co purchased a building and machinery that have the following

Question

On 1/1/08, Powell Co purchased a building and machinery that have the following useful lives, salvage value, and costs.

Building, 25 years estimated useful life, $5,000,000 cost, $500,000 salvage value
Machinery, 10 yr estimated useful life, $700,000 cost, no salvage value

The building has been depreciated under the striaght-line method through 2012. in 2013, the company decide to switch to the double-declining balance method of depreciation for the building. Powell also decided to change the total useful life of the machinery to 8 years, with a salvage value of $35,000 at the end of that time. The machinery is depreciated using the straight-line method.

a) Prepare the journal entry necessary to record the depreciation expense on the building in 2013.

b) Compute depreciation expense on teh machinery for 2013.

Explanation / Answer

a) (5,000,000-500,000)/25= 180,000/year. So at the end of 2012, the building had been depreciated 5*180,000= 900,000 and net book value was 4,100,000. 20 years left of useful life so we have 1/20* 2 *4,100,000= 410,000 depreciation under DDB. DR Depreciation expense 410,000 CR Accumulated depreciation-building 410,000 b) At the end of 5 years the book value of the machinery was 700,000*.5=350,000. So the new depreciation amount would be (350,000-35,000)/3= 105,000 per year.

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