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Colorado Consulting Company has been using the sum-of-the-years-digits depreciation method to...

Question:

Colorado Consulting Company has been using the sum-of-the-years-digits depreciation method to depreciate some office equipment that was acquired at the beginning of 2016. At the beginning of 2018, Colorado Consulting decided to change to the straight-line method.

The equipment cost $120,000 and is expected to have no salvage value. The estimated useful life of the equipment is five years. Ignore income taxes.

Required:

1. Prepare the appropriate journal entry, if any, to record the accounting change under GAAP.

2. Prepare the journal entry to record depreciation for 2018.

Answer and Explanation:

1. Prepare the appropriate journal entry, if any, to record the accounting change under GAAP.

Deprecation expense would be adjusted moving forward. Since the amount has been depreciate in the past, there is no need for an immediate adjustment.

Rather, disclosure of the change must be presented on financial statements. Explanations as to why the change is being made, as well as the effect of the change on teh statements needs to be presented.

2. Prepare the journal entry to record depreciation for 2018.

The entry will be:

Account Debit Credit
Depreciation Expense XX
Accumulated Deprecation XX

The reason XX is used is because this depends on the amount of previously taken deprecation.

For example, if there is a net balance of 60,000 to depreciate, and there are only three years left, then the entry would be for 20,000. However, if there was 100,000 left, then the entry would be for 33,333. It depends on what happened previously.


Learn more about this topic:

How to Calculate Depreciation Expense: Definition & Formula

from Financial Accounting: Help and Review

Chapter 5 / Lesson 14
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