Collins Corporation purchased office equipment at the beginning of 2016 and capi
ID: 2560870 • Letter: C
Question
Collins Corporation purchased office equipment at the beginning of 2016 and capitalized a cost of $1,974,000. This cost figure included the following expenditures Purchase price Freight charges Installation charges Annual maintenance charge Total $1,820,000 27,000 17,000 110,000 $1,974,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2016 and 2017. In 2018, after the 2017 financial statements were issued, the company decided to switch to the straight-line depreciation method fo this equipment. At that time, the company's controller discovered that the original cost of the equipment incorrectly included one y of annual maintenance charges for the equipment. Required 1. Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2018 2. Ignoring income taxes, prepare any 2018 journal entry(s) related to the change in depreciation methods Complete this question by entering your answers in the tabs below Required Required 2 Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the correcting entry for the equipment capitalization error discovered in 2018 Note: Enter debits before credits. Event General Journal Debit CreditExplanation / Answer
EVENT
DEBIT AMOUNT IN $
CREDIT AMOUNT IN $
1)
Annual Maintenance Exp
110000
To Equipment A/c
110000
(Being annual maintenance exp wrongly capitalized in 2016 reversed)
Accumulated Depreciation A/c
48125
To Depreciation A/c
48125
(Being depreciation recorded for two years on wrongly capitalized amount of annual maintenance reversed.)
(See calculation below)
2)
Accumulated Depreciation A/c
349500
To Depreciation A/c
349500
(Being excess depreciation charged for two years reversed on account of switch of depreciation method from double declining to straight line method.)
(See calculation below)
CALCULATION
NO.
PARTICULARS
FIGURES
1.
Double declining method percentage
Useful life
8 years
Depreciation percentage as per straight line
(1/8 years * 100)
12.5%
Double declining percentage
(12.50 * 2)
25.0%
2.
Amount capitalized wrongly
110000
Depreciation charged on it by double declining method for 2016
(110000 @ 25%)
27500
Add:
Depreciation charged on it by double declining method for 2017
((110000-27500) @ 25%)
20625
Total Depreciation charged on annual maintenance amount
48125
3.
Now, the actual amount of equipment after eliminating annual maintenance cost
(1974000 – 110000)
1864000
Depreciation charged on it by double declining method for 2016
(1864000 @ 25%)
466000
Add:
Depreciation charged on it by double declining method for 2017
((1864000-466000) @ 25%)
349500
Total Depreciation as per double declining method
815500
Now, depreciation as per straight line method for two years
Depreciation for 2016
(1864000 * 12.5%)
233000
Add:
Depreciation for 2017
(1864000 * 12.5%)
233000
Total Depreciation as per straight line method
466000
4.
Excess depreciation charged as per double declining method to be reversed
Depreciation as per double declining method
815500
Less:
Depreciation as per straight line method
466000
Excess depreciation charged =
349500
EVENT
GENERAL JOURNALDEBIT AMOUNT IN $
CREDIT AMOUNT IN $
1)
Annual Maintenance Exp
110000
To Equipment A/c
110000
(Being annual maintenance exp wrongly capitalized in 2016 reversed)
Accumulated Depreciation A/c
48125
To Depreciation A/c
48125
(Being depreciation recorded for two years on wrongly capitalized amount of annual maintenance reversed.)
(See calculation below)
2)
Accumulated Depreciation A/c
349500
To Depreciation A/c
349500
(Being excess depreciation charged for two years reversed on account of switch of depreciation method from double declining to straight line method.)
(See calculation below)