Pinnacle Corporation has been using the straight-line depreciation method to dep
ID: 2541653 • Letter: P
Question
Pinnacle Corporation has been using the straight-line depreciation method to depreciate some office equipment that was acquired at the beginning of 2015. At the beginning of 2018, Pinnacle decided to change to the double-declining-balance method. The equipment cost $120,000 and is expected to have no salvage value. The estimated useful life of the equipment is five years. The tax rate is 30%.
Required:
Prepare the journal entry, if any, to record the accounting change at the beginning of 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Explanation / Answer
Cost of the equipment = 120,000
Salvage value = 0
Estimated useful life = 5 years
Depreciation under straight line method = (cost - salvage value) / estimated useful life
= (120,000 - 0) / 5
= 24,000 each year
Accumulated depreciation from 2015 to 2017 = 24,000 * 3 = 72,000
Carrying value of the equipment using the straight line method = 120,000 - 72,000 = 48,000
Depreciation under double declining balance method = Carrying value / useful life * 2
Depreciation for the year 2018 = 48,000 / 2 * 2 = 48,000
48,000 is recorded as depreciation expense at the end of 2018 and no journal entry is recorded in the beginning of 2018
No journal entry required.
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