Question

On January 1, 2013, Powell Company purchased a building and machinery that have the following useful lives, salvage value, and costs. Building, 25-year estimated useful life, $9,000,000 cost, $900,000 salvage value Machinery, 10-year estimated useful life, $1,200,000 cost, no salvage value The building has been depreciated under the straight-line method through 2017. In 2018, the company decided to switch to the double-declining balance method of depreciation for the building. Powell also decided to change the total useful life of the machinery to 8 years, with a salvage value of $60,000 at the end of that time. The machinery is depreciated using the straight-line method. Instructions (a) Prepare the journal entry necessary to record the depreciation expense on the building in 2018. (b) Compute depreciation expense on the machinery for 2018.

Answer 1

Ans:

Building
Cost of Building			9,000,000
Less: Salvage value			-900,000
Depreciable amount			8,100,000
Life			25
Annual depreciation			324000
Accumulated dep till 2017			1620000
(324000*5)
Book value of Building			7,380,000
Remaining Life			20 years
Rate of dep under DDB			10%
(100/20)*2
Depreciation in Year-2018			738000	(7380,000*10%)
(Book value *10%)

1

	General Journal	Debit	Credit
a.	Depreciation	$ 738,000
	Accumulated Depreciation-Building		$ 738,000
	(To record depreciation for Building)

Machinery:
Cost of Machinery			1,200,000
Less: Ssalvage value			0
Depreciable amount			1200000
Life			10
Annual depreciation			120000
Accumulated dep			600000
(120000*5 years)
Book value of Machinery			600,000
Less: Revised salvage value			60000
Depreciable amount			540,000
Revised life (8-5)			3 years
Annual depreciation for 2018			180000

	General Journal	Debit	Credit
a.	Depreciation	$ 180,000
	Accumulated Depreciation-Machinery		$180,000
	(To record depreciation for Machinery)