On January 2, Jones Company paid $33,600 to purchase equipment that has a useful life of 8 years. The equipment will be depreciated equally over the 8-year period as depreciation expense. The cost of $33,600 is divided by the useful life of 8 years to determine the amount of the yearly depreciation expense of $4,200. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on: (a) Income statement accounts (overstated, understated, or no effect)? (b) Net income (overstated, understated, or no effect)? (c) Balance sheet accounts (overstated, understated, or no effect)? Revenue: Expense: Income Statement Accounts Net Income: Assets: Liabilities: ✓ Choose One }, {online Understated Overstated No Effect Balance Sheet Accounts Choose One }, {online Choose One }, {online Retained Earnings: Choose One }, {online ✓ x

On January 2, Jones Company paid $33,600 to purchase equipment that has a useful life of 8 years. The equipment will be depreciated equally over the 8-year period as depreciation expense. The cost of $33,600 is divided by the useful life of 8 years to determine the amount of the yearly depreciation expense of $4,200. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on: (a) Income statement accounts (overstated, understated, or no effect)? (b) Net income (overstated, understated, or no effect)? (c) Balance sheet accounts (overstated, understated, or no effect)? Revenue: Expense: Income Statement Accounts Net Income: Assets: Liabilities: ✓ Choose One }, {online Understated Overstated No Effect Balance Sheet Accounts Choose One }, {online Choose One }, {online Retained Earnings: Choose One }, {online ✓ x

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 5MC: During 2019, White Company determined that machinery previously depreciated over a 7-year life had a...

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Bliss Company owns an asset with an estimated life of 15 years and an estimated residual value of zero. Bliss uses the straight -line method of depreciation. At the beginning of the sixth year, the assets book value is 200,000 and Bliss changes the estimate of the assets life to 25 years, so that 20 years now remain in the assets life. Explain how this change will be accounted for in Blisss financial statements, and compute the current and future annual depreciation expense.
Kam Company purchased a machine on January 2, 2019, for 20,000. The machine had an expected life of 8 years and a residual value of 300. The double-declining-balance method of depreciation is used. Required: 1. Compute the depreciation expense for each year of the assets life and book value at the end of each year. 2. Assuming that the company has a policy of always changing to the straight-line method at the midpoint of the assets life, compute the depreciation expense for each year of the assets life. 3. Assuming that the company always changes to the straight-line method at the beginning of the year when the annual straight-line amount exceeds the double-declining-balance amount, compute the depreciation expense for each year of the assets life.
During 2019, Ryel Companys controller asked you to prepare correcting journal entries for the following three situations: 1. Machine A was purchased for 50,000 on January 1, 2014. Straight-line depreciation has been recorded for 5 years, and the Accumulated Depreciation account has a balance of 25,000. The estimated residual value remains at 5,000, but the service life is now estimated to be 1 year longer than estimated originally. 2. Machine B was purchased for 40,000 on January 1, 2017. It had an estimated residual value of 5,000 and an estimated service life of 10 years. it has been depreciated under the double-declining-balance method for 2 years. Now, at the beginning of the third year, Ryel has decided to change to the straight-line method. 3. Machine C was purchased for 20,000 on January 1, 2018, Double-declining-balance depreciation has been recorded for 1 year. The estimated residual value of the machine is 2,000 and the estimated service life is 5 years. The computation of the depreciation erroneously included the estimated residual value. Required: Prepare any necessary correcting journal entries for each situation. Also prepare the journal entry necessary for each situation to record depreciation expense for 2019.
Albany Corporation purchased equipment at the beginning of Year 1 for 75,000. The asset does not have a residual value and is estimated to be in service for 8 years. Calculate the depreciation expense for Years 1 and 2 using the double-declining-balance method. Round to the nearest dollar.
Akron Incorporated purchased an asset at the beginning of Year 1 for 375,000. The estimated residual value is 15,000. Akron estimates that the asset has a service life of 5 years. Calculate the depreciation expense using the sum-of-the-years-digits method for Years 1 and 2 of the assets life.
At the beginning of 2020, Holden Companys controller asked you to prepare correcting entries for the following three situations: 1. Machine X was purchased for 100,000 on January 1, 2015. Straight-line depreciation has been recorded for 5 years, and the Accumulated Depreciation account has a balance of 45,000. The estimated residual value remains at 10,000, but the service life is now estimated to be 1 year longer than originally estimated. 2. Machine Y was purchased for 40,000 on January 1, 2018. It had an estimated residual value of 4,000 and an estimated service life of 8 years. It has been depreciated under the sum-of-the-years-digits method for 2 years. Now, the company has decided to change to the straight-line method. 3. Machine Z was purchased for 80,000 on January 1, 2019. Double-declining-balance depreciation has been recorded for 1 year. The estimated residual value is 8,000 and the estimated service life is 5 years. The computation of the depreciation erroneously included the estimated residual value. Required: Prepare any necessary correcting journal entries for each situation. Also prepare the journal entry for each situation to record the depreciation for 2020. Ignore income taxes.
During 2019, White Company determined that machinery previously depreciated over a 7-year life had a total estimated useful life of only 5 years. An accounting change was made in 2019 to reflect the change in estimate. If the change had been made in 2018, accumulated depreciation at December 31, 2018, would have been 1,600,000 instead of 1,200,000. As a result of this change, the 2019 depreciation expense was 100,000 greater than it would have been if no change were made. Ignoring income tax considerations, what is the proper amount of the adjustment to Whites January 1, 2019, balance of retained earnings? a. 0 b. 100,000 c. 280,000 d. 400,000
Hathaway Company purchased a copying machine for 8,700 on October 1, 2019. The machines residual value was 500 and its expected service life was 5 years. Hathaway computes depreciation expense to the nearest whole month. Required: 1. Compute depredation expense (rounded to the nearest dollar) for 2019 and 2020 using the: a. straight-line method b. sum-of-the-years-digits method c. double-declining-balance method 2. Next Level Which method produces the highest book value at the end of 2020? 3. Next Level Which method produces the highest charge to income in 2020? 4. Next Level Over the life of the asset, which method produces the greatest amount of depreciation expense?
On August 3,Cinco construction purchased special-purpose equipment at a cost of$9,139,000. The useful life of the equipment was estimated to be eight years,with an estimated residual value of $34,300. what is the depreciation expense to be recognized each calenders year for financial reporting purposes under the 200 percent declining-balance method (half-year convention) with a switch to straight-line when it will maximize depreciation expense?
On August 3, Franko Construction purchased special - purpose equipment at a cost of $8, 900, 000. The useful life of the equipment was estimated to be eight years, with an estimated residual value of $20,000. Required: Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the straight - line depreciation method (half- year convention). Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the 200 percent declining - balance method (half-year convention) with a switch to straight line when it will maximize depreciation expense. Which of these two depreciation methods (straight line or double - declining - balance) results in the highest net income for financial reporting purposes during the first two years of the equipment's use?
On August 3, Cinco Construction purchased special-purpose equipment at a cost of $1,000,000. The useful life of the equipment was estimated to be eight years, with an estimated residual value of $50,000. a. Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the straight-line depreciation method (half-year convention).
On January 2, Alexander Company paid $21,600 to purchase equipment that has a useful life of 6 years. The equipment will be depreciated equally over the 6- year period as depreciation expense. The cost of $21,600 is divided by the useful life of 6 years to determine the amount of the yearly depreciation expense of $3,600. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on: (a) Income statement accounts (overstated, understated, or no effect)? (b) Net income (overstated, understated, or no effect)? E Aa (c) Balance sheet accounts (overstated, understated, or no effect)? Income Statement Accounts Choose One O Choose One Choose One O Balance Sheet Accounts Ⓒ2022 McGraw Hill LLC. All Rights Reserved. Terms of Use | Privacy Center (3) (1) DII DD F10 F8 Revenue: Expense: Net Income: Assets: Liabilities: Retained Earnings: Explanation :0 F1 Choose One O Choose One C Choose One X Start over do Check F2 ? 80 F3 000 000 F4 F5 MacBook Air F6 A F7 F9…