Joy Cunningham Co. purchased a machine on January 1, 2012, for $550,000. At that

Question

Joy Cunningham Co. purchased a machine on January 1, 2012, for $550,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2015, the firm’s accountant found that the entry for depreciation expense had been omitted in 2013. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2015. At present, the company uses the sum-of-the-years’-digits method for depreciating equipment.

Prepare the general journal entries that should be made at December 31, 2015, to record these events. (Ignore tax effects.)

Explanation / Answer

Journal Entries Date Particulars Dr Amount Cr Amount 31.12.2015 Retained Earnings                                               Dr. $90,000    To Accumulated Dep. - Machinery $90,000 (To correct for the omission of dep. expense in 2013) 31.12.2015 Depreciation A/c                                                 Dr. $40,000    To Accumulated Dep. - Machinery $40,000 (To record depreciation expense for 2015) Working Notes Amount of Dep. In 2013 = $550000 X 9/55 = $90000 Cost Of machine $550,000 Less: Dep. Prior to 2015 2012 - $55000 X 10/55 $100,000 2013 - $55000 X 9/55 $90,000 2014 - $55000 X 8/55 $80,000 $270,000 Book Value as on 01.01.2015 $280,000 Dep. For the 2015 : 280000 / 7 = $40000

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