On January 1, 2017, Sandhill Company purchased a building and
equipment that have the following useful lives, salvage values, and
costs.
| Building, 40-year estimated useful life, $49,200 salvage value, $828,000 cost |
| Equipment, 12-year estimated useful life, $11,200 salvage value, $99,400 cost |
The building has been depreciated under the
double-declining-balance method through 2020. In 2021, the company
decided to switch to the straight-line method of depreciation.
Sandhill also decided to change the total useful life of the
equipment to 9 years, with a salvage value of $5,200 at the end of
that time. The equipment is depreciated using the straight-line
method.
(a) Prepare the journal entry necessary to record
the depreciation expense on the building in 2021.
(Round answers to 0 decimal places, e.g. 125. Credit
account titles are automatically indented when amount is entered.
Do not indent manually. If no entry is required, select "No Entry"
for the account titles and enter 0 for the
amounts.)
(b) Compute depreciation expense on the equipment for 2021. (Round answers to 0 decimal places, e.g. 125.)
a) Journal Entries :-
| S. No. | Particulars | Debit($) | Credit($) |
| 1) | Depreciation Expenses A/c | 17367 | |
| Accumlated Depreciation Expenses A/c | 17367 | ||
| 2) | Accumlated Depreciation Expenses A/c | 17367 | |
| Building A/c | 17367 | ||
Depreciation on 2021 = (Building Value - Salvage) / Remaining Life
= ($674411 - $49200) / 36
= $17367
Building Value on end of 2020 =
| Particulars | 2017 | 2018 | 2019 | 2020 |
| Beginning Balance | $828000 | $786600 | $747270 | $709906.5 |
| Less : Depreciation (5%) | ($41400) | ($39330) | ($37363.5) | ($35495.33) |
| Ending Balance | $786600 | $747270 | $709906.5 | $674411.17 |
Double Declining Balance Depreciation Rate = SLM Rate * 2
= (100%/40)*2
= 5%
b) Calculation of Depreciation Expenses on Equipment for 2021 :-
= (Book Value of Equipment on 2021 - New Salvage) / New Usefull Life
= ($70000 - 5200) / 9 years
= $64800 / 9
= $7200
Book Value of Equipment on 2021 = $99400 - $29400 = $70000
Depreciation Upto 2020 = (($99400-$11200) / 12)*4
= ($88200 / 12)*4
= $29400
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