Question

Described below are three independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries are prepared. a. On December 30, 2017, Rival Industries acquired its office building at a cost of $10,000,000. It has been depreciated on a straight- line basis assuming a useful life of 40 years and no residual value. Early in 2021, the estimate of useful life was revised to 28 years in total with no change in residual value. b. At the beginning of 2017, the Hoffman Group purchased office equipment at a cost of $330,000. Its useful life was estimated to be 10 years with no residual value. The equipment has been depreciated by the straight-line method. On January 1, 2021, the company changed to the double-declining-balance method. c. At the beginning of 2021, Jantzen Specialties, which uses the straight-line method, changed to the double-declining-balance method for newly acquired vehicles. The change decreased current year net income by $445,000. Required: 1. Identify the type of change. 2. Prepare any journal entry necessary as a direct result of the change as well as any adjusting entry for 2021 related to the situation described. (Ignore income tax effects.)

Answer 1

The journal entries and detailed answer is attached below

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Page Page :) Important Note: 1o Any changes in life of asset during the usage of asset shall be considered as " change in accounting estimate" hence the changes in depreciabon shall be accounted "prospectively" ine No retrospectin effect. . In case of change in method of depreciation, the change y considered to be change in accounting policy" Hence it shall be accounlod "sétrospectively! Porospective effect! Recognisition of effect of change in accounting estimate in current & future periode affected by change Retrospective effectRecognision of effect of change assuming that the policy had always been applied. This change past, current & fceture periods.

W Page Page: 2 . Type of change Change (a) Tupe of change: Changes in accounting de Effects Prospective effect estimate .. +) Entsuy for dissect change in situation No Entry fos prospective effect) Year B) Adjusting endry particular 208) Depreciation expense To accumulated - depreciation (To record depreciation for the period) Debit Credit 370000 370000 end of working. Calculation of depreciation 20170: cost of office building - $10,000,000 - Life of asset : 40 yease Depreciation 1 $250000 Cassuring value @ beg of 2021

e Page - Page :3 Cost of building 10000,000 Less : Depreciation 2018 (250000) 2019 (50000) 2021 (250000) $3250000 (-) Remaining life of an asset 25 years ( Reassessed life -- 3 yeous) (28-3) Depreciation applied $370000 prospectively Change (6) .) Type of change : changes in accounting S Effect: Reloospective effect policy 6) Entry for direct change in situation Year Particulars Debit Credit 2021 Retained earnings 62832 e To acumulated. 62832 depreciation (Refer page 5) To record retro application of change in dep methods

Page : 4 Book value as per cwaent method oaCost of office equipment - $330000 (-) Useful life are 10 years - Depreciation per year $33000 Carrying value of asset od Jan 2021 - Cost of office equipment = $330000 Less : Depreciation = $33000 = $33000 2 $33000 = $33000 Carrying value in 1-1-2,021 =$199.000 00 2017 2018 2019 2020 If double declining method abready applied Depreciation percentage fline of cond) x2 =ó x100)x 2 -(107) x2 c on bonito - 202 be her

Page Page 5 Calculation equipment method of carrying value of under double decline Cost of equêpment 13 $330.000 Less! Depreciation *032 2017 (330000 X20%) ($66.000) Cooruing value @ 2013 $264000 less: Depreciation for 2018 ($52300) (264000X20%) Carrying value @ 2018 $20200 Less: Depreciation for 2018 ($ 42290) (211200 X20%) Cassing value @ 2019 $168960 Less Depreciation for 2020 ($33792) '( 16 9360 x R02) Carrying value @ 2020 $ 135168 On 191-2020 Difference in carrying value Undo current method = $198000 Under double decline method -($135168) Retrospective effect difference $ 62,832

Date Page Page :6 b) Entry for current year deprecation year Particulars Debit Credit Depreciation 27039 To acumulated 27034 depreciation Cto record depreciation for the year under double dailine method Calculation of depreciation | Carrying value of equipmenl@2020 = $135168 Plese : Depreciation @ 20% $27034 135168 X 20% Carguing Value @ 2024 $108134

Date Page - Page: 7 Change (1) Type of change! Change 90) accounting policy Effent : Retrospective effect A) Entry for direct change in situation Year Particulars Debit Credit 2021| Retained earnings 445000 To accumulated 445000 depreciation on vehicle (To record retrospective change in method Of clepreciation from straight line to double decline method)