Kathleen Cole Inc. acquired the following assets in January of 2012. The equipme

Question

Kathleen Cole Inc. acquired the following assets in January of 2012. The equipment has been depreciated using the sum-of-the-years'-digits method for the first 3 years for financial reporting purposes. In 2015, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with change in the estimated salvage value. The building is depreciated on the straight-line method. Prepare the general journal entry to record depreciation expense for the equipment in 2015. Prepare the journal entry to record depreciation expense for the building in 2015. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Explanation / Answer

a)

Equipment cost=$477,350

solvage value=$16,100

equipment to be depreciated=$461,250

so sum of years=1+2+3+4+5=15

so depreciation in 2012=$461,250*5/15=$153,750

in 2013=$123,000

in 2014=$92,250

so accumulated depreciation( for 3 years)=$369,000

so as per SLM

accumulated Depreciation up to 2015( for 4 years)=$461,250*4/5=$369,000

the depreciation to be charges for the year 2015=Accumulated depreciation as per SLM upto 2015-Accumulated depreciation as per suum of digits method=$369,000-$369,000=Nil

B) depreciation for 30 years=$875,700/30=$29,190

book value as on 2014=$875,700-$3*$29,190=$788,130

Revised depreciation=$788,130/37=$21,300.81

item account title debit credit a Depreciation $0 Accumulated depreciation $0 b) Depreciation $21,300.8 Accumulated depreciation/Building $21,300.8

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