Question

Exercise 22-8 Sage Cole Inc. acquired the following assets in January of 2015.

Equipment, estimated service life, 5 years; salvage value, $16,200 $503,700

Building, estimated service life, 30 years; no salvage value $648,000

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

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

Accumlated depreciation for 3 years = (503700-16200)/5*3 = 292500

Depreciation for 2018 for the equipment = (503700-16200-292500)/2 = 97500

accumlated dep for 3 years = (648000/30)*3 = 64800

Depreciation for 2018 for the building = (648000-64800)/37 = 15762

a) Journal entry

Date	account and explanation	debit	credit
Dec 31,2018	Depreciation expense	97500
	Accumlated depreciation-equipment		97500
	(TO record dep)

b) Journal entry

Date	account and explanation	debit	credit
Dec 31,2018	Depreciation expense	15762
	Accumlated depreciation-Building		15762
	(TO record dep)