Changes in depreciation methods, estimates. On January 1, 2010, Powell Company p

Question

Changes in depreciation methods, estimates.

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

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

Compute depreciation expense on the machinery for 2015.

Explanation / Answer

Part A)

The depreciation expense on building for 2015 is calculated as follows:

________

The journal entry is given below:

___________

Part B)

The depreciation expense on machinery for 2015 is calculated as follows;

Cost of Building 6,000,000 Less Accumulated Depreciation for the Period 1 Jan 2010 to 31st Dec 2014 [(6,000,000-600,000)/25*5] 1,080,000 Book Value of Building as on 1 Jan 2015 [A] 4,920,000 Depreciation Rate – Double Declining Method (1/(Remaining Useful Life*2 = 1/(25-5)*2) [B] 10.00% Depreciation Expense on Builiding for 2015 (A*B) $492,000

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