Question

Described below are three independent and unrelated situations involving accounting changes. Each change occurs during 2018 before any adjusting entries or closing entries are prepared. a. On December 30, 2014, Rival Industries acquired its office building at a cost of $10,300,000. It has been depreciated on a straight- line basis assuming a useful life of 40 years and no residual value. Early in 2018, the estimate of useful life was revised to 28 years in total with no change in residual value. b. At the beginning of 2014, the Hoffman Group purchased office equipment at a cost of $468,000. Its useful life was estimated to be 8 years with no residual value. The equipment has been depreciated by the sum-of-the-years'-digits method. On January 1, 2018, the company changed to the straight-line method. c. At the beginning of 2018, Jantzen Specialties, which uses the sum-of-the-years'-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net income by $475,000. Required: 1. Identify the type of change. 2. Prepare any journal entry necessary as a direct result of the change as well as any adjusting entry for 2018 related to the situation described. (Ignore income tax effects.)

Answer 1

The solution to given question is attached solved as per requirement on sub parts basis.
(1) change date 1. [a] Change in Accounting estimate change in useful life from to years to 20 years and is Accounting estimate change 16] Change in Accounting Policies change of Depreciation i Method from sum of years digit Method to straight Live Method is clearly change in Accounting Policy (c) Change in Accounting Policy change to Straight line Method of Depreciation on hewly acquired building is change in accounting Policy. (a Dep which island be levied on to years basis = 10,30,000 Dep which should be levied on 28 year basis = 14,71,428 so Diff Dep should be charged in 2018= 4,41,428 10,300,000 47 [ 10 300000 Depreciation A Cor 4,47,428 To Assets 4,41,428 (Being Adpusment Entry] 3 DOO a 2 40

35 36 [b] Dep which is already charged = 4,68,000 X 1+ 46800012 36 + 468000x3+ 4 y4 36 130,000 dep wluch Stould be charged by SLM = 4,68,000 - 58500 50,500x4 = 9,34,000 Depreciation Ale Br 104000 104000 To Assets (Being Adjustment Entry] [c] No Entry for Adjustment.