Question

The Collins Corporation purchased office equipment at the beginning of 2019 and capitalized a cost of $2,128,000. This cost included the following expenditures: Purchase price Freight charges Installation charges Annual maintenance charge Total $1,920,000 38, eee 28,000 142,000 $2,128,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2019 and 2020. In 2021, after the 2020 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company's controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment. Required: 1 & 2. Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2021 and any 2021 journal entries related to the change in depreciation methods. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to the nearest whole dollar.) View transaction list Journal entry worksheet Record the entry to correct incorrect accounts. Note: Enter debits before credits Event General Journal Debit Credit Record entry Clear entry View general journal

Answer 1

All the answers are attached below

Answer 1 Part 1: Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2021. Depreciation Recorded: DDB = 2 x (1 8) = 25% 2019-25% x 2,128,000 = $532,000 2020 -25% x (2,128,000 - 532,000) = $399,000 Correct Depreciation: 2019-25% x (2,128,000-142,000) = $496,500 2020 -25% (1,986,000-496,500) = $372,375 Journal entries to correct incorrect accounts Event General Journal Debit ($) Credit ($) General Journal Debit ($) Credit ($) 2,128,000 1 Equipment Cash 2,128,000 Equipment Expense Cash 1,986,000 142,000 2,128,000 532,000 496,500 Depreciation Expense Accumulated Depreciation Depreciation Expense Accumulated Depreciation 532,000 496,500 399,000 372,375 Depreciation Expense Accumulated Depreciation Depreciation Expense Accumulated Depreciation 399,000 372,375

Entry in 2021 due to the change in depreciation method 2 Retained Earnings (142000-35500-26625) Accumulated Depreciation Equipment 79,875 62,125 142,000 Answer 2 The change in depreciation method is treated as change in accounting estimate In year 2021, Book Value 1,986,000-(496,500+372,375) $1,117,125.00 Residual Value Remaining Life 6 years Straight Line Depreciation = 1,117,125/6 = $186,187.50 186,187.50 3 Depreciation Expense Accumulated Depreciation 186,187.50