Question

Cheyenne Cole Inc. acquired the following assets in January of 2015.

Equipment, estimated service life, 5 years; salvage value, $14,500		$536,500
Building, estimated service life, 30 years; no salvage value		$669,000

The equipment has been depreciated using the sum-of-the-years’-digits method for the first 3 years for financial reporting purposes. In 2018, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight-line method.

(a)		Prepare the general journal entry to record depreciation expense for the equipment in 2018.
(b)		Prepare the journal entry to record depreciation expense for the building in 2018.

Answer 1

Equipment :

Sum of year digit = 5+4+3+2+1 = 15

Accumulated depreciation 2015 to 2018 = (536500-14500)*12/15 = 417600

2018 Depreciation = (536500-14500-417600)/2 = 52200

Building :

Accumulated depreciation 2015 to 2018 = (669000-0)*3/30 = 66900

2018 Depreciation = (669000-0-66900)/37 = 16273

a) Journal entry

Date	account and explanation	debit	credit
2018	Depreciation expense	52200
	Accumulated depreciation-equipment		52200
	(To record dep)

b) Journal entry

Date	account and explanation	debit	credit
2018	Depreciation expense	16273
	Accumulated depreciation-Building		16273
	(To record dep)