Problem 22-1 (Part Level Submission) Holtzman Company is in the process of prepa
ID: 2330202 • Letter: P
Question
Problem 22-1 (Part Level Submission) Holtzman Company is in the process of preparing its financial statements for 2014. Assume that no entries for depreciation have been recorded in 2014. The following information related to depreciation of fixed assets is provided to you. 1. Holtzman purchased equipment on January 2, 2011, for $67,400. At that time, the equipment had an estimated useful life of 10 years with a $4,400 salvage value. The equipment is depreciated on a straight-line basis On January 2, 2014, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $2,000 salvage value 2. During 2014, Holtzman changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $400,000. It had a useful life of 10 years and a salvage value of $30,000. The following computations present depreciation on both bases for 2012 and 2013. Straight-line Declining-balance $37,000 64,000 $37,000 80,000 3. Holtzman purchased a machine on July 1, 2012, at a cost of $160,000, The machine has a salvage value of $20,000 and a useful life of 8 years. Holtzman's bookkeeper recorded straight-line depreciation in 2012 and 2013 but failed to consider the salvage value. Prepare the journal entries to record depreciation expense for 2014 and correct any errors made to date related to the information provided. (Ignore taxes.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) No. Account Titles and Explanation Debit Credit ation Accumulated Depreciation ation Accumulated Depreciation 3. Accumulated Depreciation To record current year Accumulated Depreciation Retained Earnings To correct prior year depreciation.) depreciation.)Explanation / Answer
Answers
Working
A
Original Cost
$ 67,400.00
B
Original Salvage value
$ 4,400.00
C = A - B
Depreciable base (original)
$ 63,000.00
D
Original useful life
10
E = C/D
Annual Straight Line depreciation
$ 6,300.00
F = E x 3 years
Total Depreciation for 3 years [2011 + 2012 + 2013]
$ 18,900.00
G = A - F
Book Value at the time of change in estimate of useful life
$ 48,500.00
H
New Salvage value
$ 2,000.00
I = G - H
New Depreciable base
$ 46,500.00
J
New estimated remaining life
4
K = I/J
New Straight Line Depreciation expense for 2014
$ 11,625.00
Journal Entry
No.
Accounts title
Debit
Credit
1
Depreciation Expenses
$ 11,625.00
Accumulated Depreciation
$ 11,625.00
Working
A
Original Cost
$ 400,000.00
B = $ 80000 + $ 64000
Declining Balance method depreciation for 2012 & 2013
$ 144,000.00
C = A - B
Book Value before method of depreciation is to be changed
$ 256,000.00
D
Salvage Value
$ 30,000.00
E = C - D
Remaining depreciable base
$ 226,000.00
F
Remaining useful life
8
G = E/F
Depreciation expense for 2014 as per SLM
$ 28,250.00
Journal Entry:
No.
Accounts title
Debit
Credit
2
Depreciation Expenses
$ 28,250.00
Accumulated Depreciation
$ 28,250.00
Working:
Working
Treatment done [Error]
Treatment that IS correct
A
Cost
$ 160,000.00
$ 160,000.00
B
Salvage value
$ -
$ 20,000.00
C = A - B
Depreciable base
$ 160,000.00
$ 140,000.00
D
Useful Life
8
8
E = C/D
Annual Depreciation
$ 20,000.00
$ 17,500.00
F = E x 6/12
Depreciation expense for 2012 [From 1 Jul: 6 months]
$ 10,000.00
$ 8,750.00
G = E x 12/12
Depreciation expense for 2013
$ 20,000.00
$ 17,500.00
H = F + G
Total Depreciation expense for 2 years
$ 30,000.00
$ 26,250.00
A
Depreciation Expense charged for 2012 & 2013
$ 30,000.00
B
Correct Depreciation expense for those 2 years should have been
$ 26,250.00
C = A - B
Excess Depreciation changed, to be corrected
$ 3,750.00
Journal Entries:
No.
Accounts title
Debit
Credit
3 (a)
Depreciation Expenses
$ 17,500.00
Accumulated Depreciation
$ 17,500.00
(to record current year depreciation)
3 (b)
Accumulated Depreciation
$ 3,750.00
Retained earnings
$ 3,750.00
(to correct excess depreciation charged)
A
Original Cost
$ 67,400.00
B
Original Salvage value
$ 4,400.00
C = A - B
Depreciable base (original)
$ 63,000.00
D
Original useful life
10
E = C/D
Annual Straight Line depreciation
$ 6,300.00
F = E x 3 years
Total Depreciation for 3 years [2011 + 2012 + 2013]
$ 18,900.00
G = A - F
Book Value at the time of change in estimate of useful life
$ 48,500.00
H
New Salvage value
$ 2,000.00
I = G - H
New Depreciable base
$ 46,500.00
J
New estimated remaining life
4
K = I/J
New Straight Line Depreciation expense for 2014
$ 11,625.00
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