Collins Corporation purchased office equipment at the beginning of 2016 and capi
ID: 2568180 • Letter: C
Question
Collins Corporation purchased office equipment at the beginning of 2016 and capitalized a cost of $2,000,000. This cost figure included the following expenditures:
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 for this equipment. At that time, the company's controller discovered that the original cost of the equipment incorrectly included one year 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.
Explanation / Answer
Book Value at beginning of 2016 = $ 20,00,000 Life of the assets = 8 years Simple SLM depreciation % = 1/8 = 12.50% Double decline = 12.5% X 2 = 25.00% Book Value $ 20,00,000 Depreciation for 2016 @ 25%= $ 5,00,000 Book Value at the end of the Year 2016 $ 15,00,000 Opening Balance for the year 2017 $ 15,00,000 Depreciation for 2016 @ 25%= $ 3,75,000 Book Value at the end of the Year 2017 $ 11,25,000 Revise Book Value Book Value at the opening of the Year 2018 $ 11,25,000 Less: Adjustment $ 1,00,000 Book Value for the depreciation $ 10,25,000 Life Remaining is 6 years Depreciation per year = $ 1,70,833.33 Answer =1 Date JOURNAL Journal Debit Credit 2018 Repair and maintenance Exps. $ 1,00,000 To Equipment Account $ 1,00,000 (Being Annual maintenance contract expenses shown in equipment is adjusted) Answer =2 ) There is no other entry related to changes in depreciatuion is required Onluy Depreciation entry for the year is posted at the end of the year is as below