Company XYZpurchased equipment on January 1, 2013, for $250,000. At that time it

Question

Company XYZpurchased equipment on January 1, 2013, for $250,000. At that time it was estimated that the equipment would have a 5-year life and no salvage value. On December 31, 2014, 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 the sum-of-the-years’-digits method for depreciating equipment, starting with the year 2014. At present, the company uses the straight-line method of depreciation.

Instructions: Prepare the general journal entries the accountant should make at December 31, 2014. (Ignore tax effects.)

Explanation / Answer

Depreciation as per SLM per annum = $250000/5 years = $50,000 per year Depreciation as per Sum of the years digits method Sum of digits = 1+2+3+4+5 = 15 Year Deprectiation 2013 250000*5/15 $83,333 2014 250000*4/15 $66,667 2015 250000*3/15 $50,000 2016 250000*2/15 $33,333 2017 250000*1/15 $16,667 Date Account Debit Credit 31-Dec-14 Retained earnings $66,666.67 Accumulated depreciataion $66,666.67 31-Dec-14 Depreciation expenses $50,000.00 Accumulated depreciataion $50,000.00

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