Question

Problem 11-1 Depreciation methods; change in methods (LO11-2, 11-6] The fact that generally accepted accounting principles alow companies flexibity in choosing between certain a location methods can make dilcult for a financial analyst to compare periodic performance from firm to firm Suppose you were a financial analyst trying to compare the performance of two companies Company A uses the double-declining- balance depreciation method Company Buses the straight-line method. You have the following information taken from the 12/31/19 year end financial statements for Company B Tacone Statement Depreciation expense plant and went, at cost You also determine that all of the assets constituting the plant and equipment of Company B were acquired at the same time, and that all of the 575.000 represents depreciable assets. Also, all of the depreciable assets have the same useful ife and residual values are Required: 1. In order to compare performance with Company A estimate what's depreciation expense would have been for 2015 through 2018 if the double decling balance depreciation method had been used by Company since acquisition of the depreciable assets. 2. If Company B decided to switch depreciation methods in 2018 from the straight line to the double declining balance method, prepare the 2018 journal entry to record depreciation for the year, assuming no journal entry for depreciation in 2018 has yet been recorded Complete this question by entering your answers in the tabs below. In order to compare performance with Company A, estimate what direction 2018 if the duble decling balance depreciation method has been used by Company sho would have been for 2015 tough w n of the depreciable Year 2 (2016) Required 2 >

Answer 1

(A) Straight line depreciation=75000-0/10years=7500

rate=7500*100/75000=10%

Double Declining Rate=20%

DOUBLE DECLINIG BALANCE METHOD                  
                  
                  
Year   Book Value   Depreciation   Depreciation    Accumulated   Book Value
Year Start Percent expense Depreciation   Year End
2015   75000 20% 15000 15000 60000
2016   60000 20% 12000 27000 48000
2017   48000 20% 9600 36600 38400
2018   38400 20% 7680 44280 30720
44280      

year Depreciation
expense
2015 15000
2016 12000
2017 9600
2018 7680

(b) If depreciation not recorded for 2018 and change from straight line to double declining

Book Value of assets at the beginning of 2018= 75000-7500*3

=75,000-22,500

=52,500

Staright line rate for remaining year=52,500-0/7years=7500

Dep Rate=7500*100/52500=14.285%

Double declining rate=28.57%

Depreciation Expense for 2018= 52500*28.57%=15,000

Journal entry

Depreciation Expenses A/c Dr 15,000

Accumulated Depreciation 15,000