Question

ERROR CORRECTION & CHANGE IN DEPRECIATION METHOD

GENERAL MANUFACTURERS INC. purchased and installed a large piece of equipment at the beginning of 2019 and capitalized a cost of $1,974,000. This cost figure included the following expenditures:

Purchase price	$	1,820,000
Freight charges		27,000
Installation charges		17,000
Annual maintenance charge		110,000
Total	$	1,974,000

GENERAL estimated an eight-year useful life for the equipment and used double-declining balance depreciation. Because of the nature of the equipment, it has no residual value. The double-declining-balance method was used to determine depreciation expense for 2019 and 2020.

In 2021, after the 2020 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company’s controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment.

Required:

Use the Accounting Standards Codification system to search for an answer to each question listed below. No computations or journal entries are needed in answering these questions. Type your concise answers in the space provided and upload your completed document in the assignment area in Brightspace.

Question / Your Answer	What is an appropriate ASC reference for your answer?
Should the freight charges associated with General’s equipment purchase be capitalized or expensed?  Use the space below to answer your question. Make sure to list the ASC reference(s) for your answer in the ASC reference column.
	ASC _________________
Should annual maintenance charge be capitalized or expensed? Make sure to list the ASC reference(s) for your answer in the ASC reference column.
	ASC _________________
How should general account for the change in depreciation method? Retrospectively or Prospectively? Make sure to list the ASC reference(s) for your answer in the ASC reference column.
	ASC _________________

Answer 1

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