Question

Alteran Corporation purchased office equipment for $1.6 million at the beginning of 2019. The equipment is being depreciated over a 10-year life using the double-declining-balance method. The residual value is expected to be $700,000. At the beginning of 2021 (two years later), Alteran decided to change to the straight-line depreciation method for this equipment.

Required:
Prepare the journal entry to record depreciation for 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars.)

Answer 1

The change in the method of depreciation is a change in the accounting estimate. Hence the change is to be done prospectively from the year of change and is not required to be done retrospectively. Double declining balance depreciation = 2 * straight line depreciation percent * book value at the beginning of the period The equipment is being depreciated over a 10-year useful life. Hence the straight line depreciation percent = 10% Double declining balance depreciation percent = 2*10% = 20% Depreciation for the year 2019 = Cost * double declining balance depreciation percent = $1,600,000 * 20% = $320,000 Book value at the end of 2019 = $1,600,000 - $320,000 = $1,280,000 Depreciation for the year 2020 = book value * double declining balance depreciation percent = $1,280,000 * 20% = $256,000 Book value at the end of 2020 = $1,280,000 - $256,000 = $1,024,000 At the beginning of 2021, Alteran decided to change to straight line depreciation method. Depreciation under straight line method = (Book value at the beginning of 2021 - Residual value)/Remaining useful life Depreciation under straight line method = ($1,024,000 - $700,000)/8 years = $40,500 Credit Journal entry to record depreciation for 2021 Date Account Title and Explanation December 31, 2021 Depreciation Expense To Accumulated Depreciation - Office Equipment (To record depreciation for the year using straight line method) Debit $40,500 $40,500