During 2016 and 2017, Faulkner Manufacturing used the sum-of-the-years\'-digits

Question

During 2016 and 2017, Faulkner Manufacturing used the sum-of-the-years'-digits (SYD) method of depreciation for its depreciable assets, for both financial reporting and tax purposes. At the beginning of 2018, Faulkner decided to change to the straight-line method for both financial reporting and tax purposes. A tax rate of 40% is in effect for all years. For an asset that cost $19,000 with an estimated residual value of $1,000 and an estimated useful life of 10 years, the depreciation under different methods is as follows: Year Straight Line 2016 SYD Difference $3,273 $1,800 $1,473 20171,8002,.945 1,145 3,600 6,218 2,618 Required: 1. Prepare the journal entry that Faulkner will record in 2018 related to the change. 2. Suppose instead that Faulkner previously used straight-line depreciation and changed to sum-of-the-years'- digits in 2018 Prepare the journal entry that Faulkner will record in 2018 related to the change

Explanation / Answer

If the company had used the SLM method throughout, depreciation in prior years would have been $2,618 lower Furthermore, if the company had used the SLM method throughout, the accumulated depreciation would have been $2,618 lower. Account Debit Credit Accumulated Depreciation 2618 Cumulative Effect of Change in Accounting Principle 2618

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