Question

Holtzman Company is in the process of preparing its financial statements for 2020. Assume that no entries for depreciation have been recorded in 2020. The following information related to depreciation of fixed assets is provided to you. 1. Holtzman purchased equipment on January 2, 2017, for $105,400. At that time, the equipment had an estimated useful life of 10 years with a $6,200 residual value. The equipment is depreciated on a straight-line basis. On January 2, 2020, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $3,720 residual value. During 2020, Holtzman changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $372,000. It had a useful life of 10 years and a residual value of $37,200. The following calculations present depreciation on both bases for 2018 and 2019. 2018 2019 Straight- Double-Declining Line -Balance $33,480 $74,400 33,480 59,520 3. Holtzman purchased a machine on July 1, 2018, at a cost of $148,800. The machine has a residual value of $19,840 and a useful life of 8 years. Holtzman's bookkeeper recorded straight-line depreciation in 2018 and 2019 but failed to consider the residual value.

Answer 1

Part 1
Cost of equipment	$1,05,400
Less:residual value	$6,200
Depreciable value of the equipment	$99,200
Annual Depreciation($99,200/10 years)	$9,920
Book value as on January 2,2020	$75,640
[$105,400-($9,920*3)]
Less:Revised Residual value	$3,720
Revised Depreciable value of the equipment	$71,920
Remaining years	4
Depreciation for 2020	$17,980
Account and explanation	Debit	Credit
Depreciation expenses	$17,980
Accumulated Depreciation		$17,980
Part 2
Cost of equipment	$3,72,000
Less:Depreciation as per DDB for 2 years	$1,33,920
Book value as on January 2,2020	$2,38,080
Less:Residual value	$37,200
Depreciable costs	$2,00,880
Remaining years	8
Depreciation for 2020($200,800/8 years)	$25,110
Account and explanation	Debit	Credit
Depreciation expenses	$25,110
Accumulated Depreciation		$25,110
Part 3
Cost of Machine	$1,48,800
Less:Residual value	$19,840
Book value as on January 2,2020	$1,28,960
Depreciation wrongly charged($148,800/8 years)	$18,600
Correct Depreciation($128,960/8)	$16,120
Account and explanation	Debit	Credit
Depreciation expenses	$16,120
Accumulated Depreciation		$16,120
(To correcct depreciation charged)
Accumulated Depreciation	$18,600
Depreciation expenses		$18,600
(To depreciation charged wrongly reversed)
	2020	2019
Income before Depreciation expenses	$3,72,000	$3,84,400
Less:Depreciation expenses	$16,120	$16,120
Income after Depreciation	$3,55,880	$3,68,280