Annual depreciation expense on a building purchased a few years ago (using the s

Question

Annual depreciation expense on a building purchased a few years ago (using the straight-line method) is $5,700. The cost of the building was $114,000. The current book value of the equipment (January 1, 2018) is $96,900. At the time of purchase, the asset was estimated to have a zero salvage value. On January 1, 2018, the company decided to reduce the original useful life by 25% and to establish a salvage value of $5,700. The firm also decided double-declining-balance depreciation was more appropriate. Ignore tax effects.

Required:
1. Prepare the journal entry, if any, to report the accounting change under GAAP.
2. Record the annual depreciation for 2018.

View transaction list Journal entry worksheet Record the journal entry, if any, to report the accounting change. Note: Enter debits before credits Event General Journal Debit Credit Record entry Clear entry View general journal

Explanation / Answer

Note : Change in depreciation method , change in estimated useful life , & change in salvage value are regarded as change in accounting estimates . And such change in accounting estimates are recorded prospectively in remaining useful life on current book value

Original useful life = $114,000 / $5,700 = 20 years

Revised useful life = 20 * 75 % = 15 years

Remaining useful life = 15 years - [($114,000- $96,900) / $5,700 ] = 15 years - 3 years = 12 years

Depreciation as per double-declining-balance = 2 * 1 / Remaining useful life *  current book value

= 2 * 1 /12 * $96,900 = $16,150

Event General Journal Debit ($) Credit ($) 1 To report the accounting change NO ENTRY 2 Annual Depreciation for 2018 Depreciation Expense 16,150 Accumulated Depreciation - Building 16,150

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