On January 1, 2010, Powell Company purchased a building and machinery that have

Question

On January 1, 2010, Powell Company purchased a building and machinery that have the following useful lives, salvage value, and costs.

Building, 25-year estimated useful life, $6,000,000 cost, $600,000 salvage value

Machinery, 10-year estimated useful life, $800,000 cost, no salvage value

The building has been depreciated under the straight-line method through 2014. In 2015, the company decided to switch to the double-declining balance method of depreciation for the building. Powell also decided to change the total useful life of the machinery to 8 years, with a salvage value of $40,000 at the end of that time. The machinery is depreciated using the straight-line method.

Instructions

(a)   Prepare the journal entry necessary to record the depreciation expense on the building in 2015.

(b)   Compute depreciation expense on the machinery for 2015.

Explanation / Answer

Depreciation on building Original Depreciation on SLM 6000000-600000/25 216000 per year Double Declining Method 2*Straight Line Rate*Book value at the beginning of the year Straight line Rate 4 % Year Beg. Book Value Depreciation 2*4% Ending Book Value 2010 6000000 480000 5520000 2011 5520000 441600 5078400 2012 5078400 406272 4672128 2013 4672128 373770 4298357.76 2014 4298357.76 343869 3954489.139 Total 2045511 Less: SLM 216000*5 already charged 1080000 Depreciation expense to be charged for previous years 965511 Depreciation in 2015 316359 3954489*0.08 Total depreciation to be charged $1281870 Ans b) Depreciation on Machinery Depreciation on SLM 80000 per year In 5 years it has been depreciated by 400000 Book Value on 1 Jan 2015 800000-400000 400000 Now 3 years life left Depreciation 400000-40000/3 120000 $ Ans

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