Question

During 2016 and 2017, Faulkner Manufacturing used the sum-of-the-years’-digits (SYD) method of depreciation for its depreciable assets, for both financial reporting and tax purposes. At the beginning of 2018, Faulkner decided to change to the straight-line method for both financial reporting and tax purposes. A tax rate of 40% is in effect for all years.

For an asset that cost $24,000 with an estimated residual value of $1,000 and an estimated useful life of 10 years, the depreciation under different methods is as follows:

Year	Straight Line				SYD			Difference
2016		$	2,300		$	4,182			$	1,882
2017			2,300			3,764				1,464
		$	4,600		$	7,946			$	3,346

Required:
1. Prepare the journal entry that Faulkner will record in 2018 related to the change.
2. Suppose instead that Faulkner previously used straight-line depreciation and changed to sum-of-the-years’- digits in 2018. Prepare the journal entry that Faulkner will record in 2018 related to the change.

Answer 1