Whispering Cole Inc. acquired the following assets in January of 2015. The equip

Question

Whispering Cole Inc. acquired the following assets in January of 2015.

The equipment has been depreciated using the sum-of-the-years’-digits method for the first 3 years for financial reporting purposes. In 2018, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight-line method.

(Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.

Account Titles and Explanation

Debit

Credit

Equipment, estimated service life, 5 years; salvage value, $14,500 $536,500 Building, estimated service life, 30 years; no salvage value $669,000

Explanation / Answer

Calculate depreciation expense for 2018 :

Equipment :

Sum of year digit = 5+4+3+2+1 = 15

Accumlated dep for first 3 years = (536500-14500)*12/15 = 417600

2018 dep = (536500-14500-417600)/2 = 52200

Building :

Straight line dep = 669000/30 = 22300 per year

Accumlated dep for first three year = 22300*3 = 66900

2018 dep (669000-66900)/37 = 16273

Journal entry :

Date accounts & expense debit credit Depreciation expense 52200 Accumlated depreciation-equipment 52200 (To record depreciation) Depreciation expense 16273 Accumlated depreciation-Building 16273 (To record depreciation)

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