The Diamond Glitter Company is in the process of preparing its financial stateme

Question

The Diamond Glitter Company is in the process of preparing its financial statements for 2012. Assume that no entries for depreciation have been recorded in 2012. The following information related to depreciation of fixed assets is provided to you.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

1. The company purchased equipment on January 2, 2009, for $165000. At that time, the equipment had an estimated useful life of 7 years with a $25000 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2012, as a result of additional information, the company determined that the equipment has a remaining useful life of 3 years with a $15000 salvage value.

3. The company purchased a machine on July 1, 2010, at a cost of $450000. The machine has a salvage value of $25000 and a useful life of 10 years. The company's bookkeeper recorded straight-line depreciation in 2010 and 2011 but failed to consider the salvage value.

6. At December 31, 2012, the company decided to change to the straight -line method depreciation method on its retail display equipment from double-declining-balance. The equipment had an original cost of $250000 when purchased on January 1, 2011. It has a salvage value of 0 and an 8-year useful life. Depreciation expense recorded prior to 2012 under the double-declining-balance method was $62500. The company has already recorded 2012 depreciation expense of $46875 using the double-declining-balance method.

Explanation / Answer

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