For financial reporting, Clinton Poultry Farms has used the declining-balance method of depreciation for conveyor equipment acquired at the beginning of 2018 for $2,816,000. Its useful life was estimated to be six years with a $224,000 residual value. At the beginning of 2021, Clinton decides to change to the straight-line method. The effect of this change on depreciation for each year is as follows: ($ in thousands) Year Straight-Line Declining Balance Difference 2018 $ 432 $ 938 $ 506 2019 432 626 194 2020 432 417 (15 ) $ 1,296 $ 1,981 $ 685 Required: 2. Prepare any 2021 journal entry related to the change. (Enter your answers in dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
For financial reporting, Clinton Poultry Farms has used the declining-balance method of
| ($ in thousands) | |||||||||||||
| Year | Straight-Line | Declining Balance | Difference | ||||||||||
| 2018 | $ | 432 | $ | 938 | $ | 506 | |||||||
| 2019 | 432 | 626 | 194 | ||||||||||
| 2020 | 432 | 417 | (15 | ) | |||||||||
| $ | 1,296 | $ | 1,981 | $ | 685 | ||||||||
Required:
2. Prepare any 2021
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