Flounder Industries changed from the double-declining-balance to the straight-li
ID: 2515382 • Letter: F
Question
Flounder 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 $1,561,600, with a $112,000 salvage value and an 8-year estimated useful life. Income before depreciation expense was $255,200 in 2017 and $320,000 in 2018.
Account Titles and Explanation
Debit
Credit
LINK TO TEXT
2018
2017
Flounder 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 $1,561,600, with a $112,000 salvage value and an 8-year estimated useful life. Income before depreciation expense was $255,200 in 2017 and $320,000 in 2018.
Explanation / Answer
The asset was depreciated using double declining balance method from 2015 to 2017.
So first we will calculate depreciation expense and book value for 3 years.
Declining balance depreciation is calculated by following formula)
Depreciation = Depreciation rate * Book value of asset
Depreciation rate = Accelerator * straight line rate
Straight line rate = 1/ useful life of asset in years
If asset cost is 1561600 and its useful life is 8 years then straight line rate will be = 1/8
= 0.125
After that we need to calculate Depreciation rate which will be = 0.125*2= 0.25
Depreciation for the first year will be,
Depreciation 1st year = 0.25*1561600
= 390400
Book value of asset after first year of depreciation will be = 1561600- 390400= 1171200
Next year depreciation will be calculated same way, we can now prepare the depreciation schedule
Year
Depreciation
Accumulated depreciation
Book value
1
390400
390400
1171200
2
292800
683200
878400
3
219600
902800
658800
Book value of the asset at the end of 2017 is 658800.
Now remaining life of the asset is 5 years, salvage value is 112000, and depreciation method is straight line.
Straight Line method
Annual Depreciation = (Machine cost - salvage value)/ useful years
Annual Depreciation= (658800 - 112000)/ 5
= (546800)/ 5
= 109360
So depreciation Expense for year 2018 will be 109360.
Date
Account Titles and Explanation
Debit
Credit
31/12/2018
Depreciation Expense
109360
Accumulated Depreciation
109360
(To record depreciation expense in 2018)
-----------------------------------------------------------------------------------------------------------------
2018
2017
Income before depreciation expense
320000
255200
Depreciation Exp
109360
219600
Net Income
210640
35600
-----------------------------------------------------------------------------------------------------------------
Hope this answer your query.
Feel free to comment if you need further assistance. J
Year
Depreciation
Accumulated depreciation
Book value
1
390400
390400
1171200
2
292800
683200
878400
3
219600
902800
658800
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