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 no change in the estimated salvage value. The building is depreciated on the straight-line method.

Equipment, estimated service life, 5 years; salvage value, $15,000 $525,000 Building, estimated service life, 30 years; no salvage value $693,000

Explanation / Answer

Sum of digits = 1+2+3+4+5 = 15

$525,000 - $15,000 = $510,000/15 = $34,000

Depeciation

for firs year 34,000*5                      = $170,000

For second year 34,000*4             =$136,000

For third year 34,000* 3                  = $102,000

total ccumulated depreciation       = $408,000

Cost of equipment 2015 = $525,000 - $408,000 = $117,000

Depreciation for 2015 under straight line method = ($117,000 - $15,000)/(5-3) = $51,000

Journal entry

(B) Building

$693,000/30 = $23,100

Depreciation for three years = 23,100 * 3 = $69,300

depreciation ($693,000 - $69,300) / (40 -3) = $16,857

Journal entry

Depreciation expense $51,000 To Accumulated depreciation $51,000

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