Question

Exercise 22-12 On January 1, 2014, Pearl Company purchased a building and equipment that have the following useful lives, salvage values, and costs. Building, 40-year estimated useful life, $53,200 salvage value, $746,800 cost Equipment, 12-year estimated useful life, $10,800 salvage value, $103,500 cost The building has been depreciated under the double-declining-balance method through 2017. In 2018, the company decided to switch to the straight-line method of depreciation. Pearl also decided to change the total useful life of the equipment to 9 years, with a salvage value of $5,200 at the end of that time. The equipment is depreciated using the straight-line method. (a) Prepare the journal entry necessary to record the depreciation expense on the building in 2018. (Round answers to o 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 o for the amounts.) Account Titles and Explanation Debit Credit Depreciation Expense Accumulated Depreciation-Building (b) Compute depreciation expense on the equipment for 2018. (Round answers to O decimal places, e.g. 125.) 2018 Depreciation expenses

Answer 1

Part A
Double Declining balance
Date	Cost of asset	Book Value	DDB Rate	Depreciation expenses	Accumulated Depreciation	Book value
2014	$7,46,800	$7,46,800	5.00%	$28,005	$28,005	$7,18,795
2015	$7,46,800	$7,18,795.00	5.00%	$35,940	$63,945	$6,82,855
2016	$7,46,800	$6,82,855.25	5.00%	$34,143	$98,088	$6,48,712
2017	$7,46,800	$6,48,712.49	5.00%	$32,436	$1,30,523	$6,16,277
	Book value as on Dec 31,2017 =$616,277
	Remaining useful life of Building =36 years
	Annual Depreciation as per straight line method =$616,277 / 36 years =$17,119
	Accounts & Explanation	Debit	Credit
Dec 31 2018	Depreciation expenses	$17,119
	Accumulated Depreciation-Building		$17,119
Part B
	Annual depreciation =($103,500 - $10,800) / 12 years =$7,725
	Book value as on Dec 31,2017 =$103,500 - ($7,725*4) =$72,600
	Remaining useful life after change =5 years
	Depreciation expenses for 2018 =($72,600 - $5,200) / 5 years =$13,480