INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING
8th Edition
ISBN: 9780078025839
Author: J. David Spiceland
Publisher: McGraw-Hill Education
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Chapter 20, Problem 20.11P

(1)

To determine

Change in depreciation method:

A change in depreciation methods are considered as a change in estimate that is achieved by a change in accounting principle.

Error correction:

Error correction is an adjustment to previously issued financial statements. It is not considered as an accounting change.

Change in estimate

It refers to a change where the new information influences the companies to update the previously made estimates.

To prepare: The correcting entry for the equipment capitalization error discovered in 2015:

(1)

Expert Solution
Check Mark

Explanation of Solution

Determine the incorrect entry for the equipment capitalization error:

Date Account Title and Explanation Debit Credit
2014 Equipment $2,000,000  
        Cash      $2,000,000
  (To record equipment sale)    

Table (1)

Equipment is an asset. There is an increase in asset value. Therefore, it is debited.

Determine the correct entry for the equipment capitalization error:

Date Account Title and Explanation Debit Credit
2014 Equipment     $1,900,000  
  Depreciation expense   $100,000
        Accumulated depreciation    $2,000,000
  (To record accumulated depreciation correction)    

Table (2)

Equipment is an asset. There is an increase in asset value. Therefore, it is debited.

Depreciation is an expense. An expense will reduce the stock holders’ equity.  There is a decrease in the value of the stock holders’ equity by $100,000.

Accumulated depreciation is a contra asset. There is a decrease in assets value. Therefore, it is credited.

Determine the Incorrect journal entry:

Date Account Title and Explanation Debit Credit
2014 Depreciation expense   (1) $500,000  
       Accumulated depreciation    $500,000
  (To record accumulated depreciation)    

Table (3)

Working note:

Calculate the depreciation expense:

Depreciation expense=$2,000,000×25%=$500,000 (1)

Depreciation is an expense. An expense will reduce the stock holders’ equity. Since there is a decrease in the value of the stock holders’ equity of $500,000 is debited.

Accumulated depreciation is a contra asset. There is a decrease in assets value. Therefore, it is credited.

Determine the correct journal entry:

Date Account Title and Explanation Debit Credit
2014 Depreciation expense   (2) $475,000  
       Accumulated depreciation    $475,000
  (To record accumulated depreciation)    

Table (4)

Working note:

Calculate the depreciation expense:

Depreciation expense=$1,900,000×25%=$475,000 (2)

Depreciation is an expense. An expense will reduce the stock holders’ equity. Since there is a decrease in the value of the stock holders’ equity of $475,000 is debited.

Accumulated depreciation is a contra asset. There is a decrease in assets value. Therefore, it is credited.

Determine the Incorrect journal entry:

Date Account Title and Explanation Debit Credit
2015 Depreciation expense   (3) $375,000  
       Accumulated depreciation    $375,000
  (To record accumulated depreciation)    

Table (5)

Working note:

Calculate the depreciation expense:

Depreciation expense=$2,000,000$500,000×25%=$375,000 (3)

Depreciation is an expense. An expense will reduce the stock holders’ equity. Since there is a decrease in the value of the stock holders’ equity of $375,000 is debited.

Accumulated depreciation is a contra asset. There is a decrease in assets value. Therefore, it is credited.

Determine the correct journal entry:

Date Account Title and Explanation Debit Credit
2015 Depreciation expense   (4) $356,250  
       Accumulated depreciation    $356,250
  (To record accumulated depreciation)    

Table (6)

Working note:

Calculate the depreciation expense:

Depreciation expense=$1,900,000$475,000×25%=$356,250 (4)

Depreciation is an expense. An expense will reduce the stock holders’ equity. Since there is a decrease in the value of the stock holders’ equity of $356,250 is debited.

Accumulated depreciation is a contra asset. There is a decrease in assets value. Therefore, it is credited.

Determine correct the incorrect entry:

Date Account Title and Explanation Debit Credit
2015 Retained earnings $ 56,250
  Accumulated depreciation $ 43,750  
            Equipment   $ 100,000
  ( To correct incorrect accounts)    

Table (7)

Depreciation expense was overstated by $43,750, but other expenses were understated by $100,000.

Net income during the period was overstated by $56,250, Retained earnings is currently overstated by that amount.

Accumulated depreciation was overstated, and continues to be overstated by $43,750. 

(2)

To determine

To prepare: The entries related to the change in depreciation methods.

(2)

Expert Solution
Check Mark

Explanation of Solution

Determine the entries related to the change in depreciation methods:

Particulars Amount ($)
Asset’s cost (after correction) 1,900,000
Less: Accumulated depreciation to date ($475,000 + 356,250) (831,250)
Un depreciated cost, Jan. 1, 2016 1,068,750
Less: Estimated residual value (0)
To be depreciated over remaining 6 years 1,068,750
Divide     6 years
Annual straight-line depreciation 2016–2021 178,125

Table (8)

Determine the adjusting entry for the year 2018:

Date Account Title and Explanation Debit Credit
2016 Depreciation expense   $178,125  
       Accumulated depreciation    $178,125
  (To record accumulated depreciation)    

Table (9)

No entry is needed to record the change.

Change in depreciation method:

A change in depreciation methods are considered as a change in estimate that is achieved by a change in accounting principle.

The Corporation C reports the change prospectively and previous financial statements are not revised.

Corporation C uses straight line method

The un-depreciated cost remaining at the time of the change is depreciated straight line over the remaining useful life.

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Chapter 20 Solutions

INTERMEDIATE ACCOUNTING

Ch. 20 - Prob. 20.11QCh. 20 - Describe the process of correcting an error when...Ch. 20 - Prob. 20.13QCh. 20 - If it is discovered that an extraordinary repair...Ch. 20 - Prob. 20.15QCh. 20 - Prob. 20.16QCh. 20 - Prob. 20.17QCh. 20 - BE 20–1 Change in inventory methods LO20–2 In...Ch. 20 - Prob. 20.2BECh. 20 - Prob. 20.3BECh. 20 - Prob. 20.4BECh. 20 - Prob. 20.5BECh. 20 - Prob. 20.6BECh. 20 - Prob. 20.7BECh. 20 - Prob. 20.8BECh. 20 - Prob. 20.9BECh. 20 - Prob. 20.10BECh. 20 - Prob. 20.11BECh. 20 - Prob. 20.12BECh. 20 - Prob. 20.1ECh. 20 - Prob. 20.2ECh. 20 - Prob. 20.3ECh. 20 - Prob. 20.4ECh. 20 - Prob. 20.5ECh. 20 - FASB codification research LO202 Access the FASB...Ch. 20 - Prob. 20.7ECh. 20 - Prob. 20.8ECh. 20 - Prob. 20.9ECh. 20 - Prob. 20.10ECh. 20 - Prob. 20.11ECh. 20 - Prob. 20.12ECh. 20 - Prob. 20.13ECh. 20 - Prob. 20.14ECh. 20 - Prob. 20.15ECh. 20 - Prob. 20.16ECh. 20 - Prob. 20.17ECh. 20 - Classifying accounting changes LO201 through...Ch. 20 - Prob. 20.19ECh. 20 - Prob. 20.20ECh. 20 - Prob. 20.21ECh. 20 - Prob. 20.22ECh. 20 - Prob. 20.23ECh. 20 - Prob. 20.24ECh. 20 - Classifying accounting changes and errors LO201...Ch. 20 - Prob. 1CPACh. 20 - Prob. 2CPACh. 20 - Prob. 3CPACh. 20 - Prob. 4CPACh. 20 - Prob. 5CPACh. 20 - Prob. 6CPACh. 20 - Prob. 7CPACh. 20 - Prob. 8CPACh. 20 - Prob. 9CPACh. 20 - Prob. 10CPACh. 20 - Prob. 11CPACh. 20 - Prob. 12CPACh. 20 - Prob. 13CPACh. 20 - Prob. 14CPACh. 20 - Prob. 15CPACh. 20 - Prob. 1CMACh. 20 - Prob. 2CMACh. 20 - Prob. 3CMACh. 20 - Prob. 20.1PCh. 20 - Prob. 20.2PCh. 20 - Prob. 20.3PCh. 20 - Prob. 20.4PCh. 20 - Prob. 20.5PCh. 20 - Prob. 20.6PCh. 20 - Prob. 20.7PCh. 20 - Prob. 20.8PCh. 20 - Prob. 20.9PCh. 20 - Prob. 20.10PCh. 20 - Prob. 20.11PCh. 20 - Prob. 20.12PCh. 20 - Prob. 20.13PCh. 20 - Prob. 20.14PCh. 20 - Prob. 20.15PCh. 20 - Prob. 20.16PCh. 20 - Prob. 20.17PCh. 20 - Prob. 20.1BYPCh. 20 - Prob. 20.2BYPCh. 20 - Prob. 20.3BYPCh. 20 - Prob. 20.4BYPCh. 20 - Prob. 20.5BYPCh. 20 - Prob. 20.6BYPCh. 20 - Analytic Case 20–8 Various changes LO20–1 through...Ch. 20 - Prob. 20.9BYPCh. 20 - Prob. 20.10BYPCh. 20 - Prob. 20.11BYPCh. 20 - Prob. 20.12BYP
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Depreciation -MACRS; Author: Ronald Moy, Ph.D., CFA, CFP;https://www.youtube.com/watch?v=jsf7NCnkAmk;License: Standard Youtube License