Question

On January 1, 2016, Maria Company purchased a building and machinery that have the following useful lives, salvage value, and costs.

Building, 25-year estimated useful life, $9,480,000 cost, $948,000 salvage value

Machinery, 10-year estimated useful life, $1,700,000 cost, no salvage value

The building has been depreciated under the straight-line method through 2020. In 2021, the company decided to switch to the double-declining balance method of depreciation for the building. Maria also decided to change the total useful life of the machinery to 8 years, with a salvage value of $85,000 at the end of that time. The machinery is depreciated using the straight-line method.

(a)

Prepare the journal entry necessary to record the depreciation expense on the building in 2021. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

Answer 1

This a change in Accounting Estimate.

Exisiting Scenario:

Buildings under SLM =>

Depreciation = (cost - salvage)/ usefeul life ie., (9,480,000-948,000)/25 => $ 341,280 pa.

Asset was purchase in 1/1/2016 and we have charged depreication under SLM untill 31/12/2020: ie., 5 years. So total depreciation charged till date => $ 341,280* 5 => 1,706,700

So WDV as on 01/01/2020 => 9,480,000-1,706,700 = 7,773,600 ..(1)

Proposed scenario:

Proposed method is Double declining method. Remaining Useful Life of buidling is 20 (ie 25-5) years, So Depreciation Rate => 1/20*2*100 => 10%

Hence, Depreciation on Buildingd for 2021 is 7.773,600*10% => 777,360.

So, Journal Entry is:

31/12/21	Depreciation Expense a/c Dr	777,360
	To Building a/c		777,360
	(Depreciation charged)

(The question doesnot asl depreciation on machinery, hencce calculations are not necessary)