On January 1, 2014, Windsor Company purchased a building and equipment that have

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On January 1, 2014, Windsor Company purchased a building and equipment that have the following useful lives, salvage values, and costs. Building, 40-year estimated useful life, $47,200 salvage value, $789,600 cost Equipment, 12-year estimated useful life, $10,000 salvage value, $91,900 cost The building has been depreciated under the double-declining-balance method through 2017. In 2018, the company decided to switch to the straight-line method of depreciation. Windsor also decided to change the total useful life of the equipment to 9 years, with a salvage value of $5,200 at the end of that time. The equipment is depreciated using the straight-line method. (a) Prepare the journal entry necessary to record the depreciation expense on the building in 2018. (Round answers to O 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 O for the amounts.) Account Titles and Explanation Debit Credit (b) Compute depreciation expense on the equipment for 2018. (Round answers to O decimal places, e.g. 125.) 2018 Depreciation expense

Explanation / Answer

(a).

Accounts Titles and Explanation

Debit

Credit

Depreciation expense

$16554

     Accumulated depreciation-Building

$16554

(For recording depreciation expense on building for 2018)

Working Note;

First of all let’s calculate depreciation from 2014 to 2017 on building;

Rate of depreciation (1 / 40) = 2.5%

But rate of depreciation, as per double-declining-balance method (2.5% * 2) = 5%

Note: All calculations are done to nearest whole number.

Year

Book value at the beginning

Depreciation

Book value at the end

2014

$789600

($789600 * .05) = $39480

$750120

2015

$750120

($750120 * .05) = $37506

$712614

2016

$712614

($712614 * .05) = $35631

$676983

2017

$676983

($676983 * .05) = $33849

$643134

As per information of the question, it is given that in 2018 company switched to straight line method;

Depreciation for 2018 will be calculated as follow;

Book value at the starting of 2018 = $643134

Useful life (40 – 4) = 36 years

Salvage value = $47200

Depreciation expense ($643134 - $47200) / 36 = $16553.72 or $16554

(b). Depreciation expense on equipment for 2018 = $11880

Explanation;

First of all, let’s calculate depreciation from 2014 to 2017;

Cost of equipment on January 1, 2014 = $91900

Salvage value = $10000

Useful life = 12 year

Thus annual depreciation ($91900 – $10000) / 12 = $6825

Thus total accumulated depreciation from 2014 to 2017 will be as follow;

($6825 * 4) = $27300

Now book value at the beginning of 2018 will be;

($91900 - $27300) = $64600

New useful life = 9 years

Remaining useful life (9 – 4) = 5 years

Salvage value is given = $5200

Thus depreciation for 2018 on equipment will be as follow;

($64600 - $5200) / 5 = $11880

Accounts Titles and Explanation

Debit

Credit

Depreciation expense

$16554

     Accumulated depreciation-Building

$16554

(For recording depreciation expense on building for 2018)

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