Answer:
Bailand Company
Journal Entries:
1. Re-estimated useful life to 8 years (12 in total):
Debit Depreciation Expense $21,000
Credit Accumulated Depreciation $21,000
To record depreciation expense for the year.
2. Sum of the digit method:
Debit Depreciation Expense $37,333
Credit Accumulated Depreciation $37,333
To record depreciation expense for the year.
3. Bailand discovers that the estimated residual value had been ignored:
Debit Depreciation Expense $27,600
Credit Accumulated Depreciation $27,600
To record depreciation expense for the year.
Explanation:
A) Calculations:
Building $286,000
Residual value = $6,000
Depreciable amount = $280,000 ($286,000 = 6,000)
Straight-line Depreciation per year = $28,000 ($280,000/10)
Accumulated Depreciation after 4 years = $112,000 ($28,000 x 4)
Book value after 4 years = $174,000
Independent situations:
1. Bailand estimates that the asset has 8 years’ life remaining (for a total of 12 years).
Book Value = $174,000
Residual value = $6,000
Depreciable amount = $168,000
Remaining Lifespan = 8 years
Depreciation expense each year = $21,000
2. Bailand changes to the sum-of-the-years’-digits method.
8/36 x $168,000 = $37,333 for fifth year.
7/36 x $168,000 for the sixth year
6/36 x $168,000 for the seventh year, and so forth
B) The Sum-of-the-years'-digits (SYD) is an accelerated method for calculating an asset's depreciation. For each year, there is a digit reflecting the number of years remaining. This digit is then divided by this sum of the years to determine the percentage by which the asset should be depreciated each year, starting with the highest number in the first year of application.
3. Bailand discovers that the estimated residual value has been ignored in the computation of depreciation expense.
Determination of annual depreciation expenses:
Depreciable amount = $286,000
Depreciation expense per year = $28,600 ($286,000/10)
After four years, Accumulated Depreciation = $114,400 ($28,600 x4)
Book Value = $171,600 ($286,000 - 114,000)
less salvage value $6,000
Depreciable amount = $165,600
Depreciation expense each year = $27,600 ($165,600 / 6)
