The Diamond Glitter Company is in the process of preparing itsfinancial statements for 2012. Assume that no entries fordepreciation have been recorded in 2012. The following informationrelated to depreciation of fixed assets is provided to you.
1. The company purchased equipment on January 2, 2009, for $165000.At that time, the equipment had an estimated useful life of 7 yearswith a $25000 salvage value. The equipment is depreciated on astraight-line basis. On January 2, 2012, as a result of additionalinformation, the company determined that the equipment has aremaining useful life of 3 years with a $15000 salvage value.
2. During 2012, the company changed from thedouble-declining-balance method for its building to thestraight-line method. The building originally cost $625000. It hada useful life of 10 years and a salvage value of $50000. Thefollowing computations present depreciation on both bases for 2010and 2011.
2011 2010
Straight-line $ 57,500 $ 57,500
Declining-balance $ 92,000 $ 115,000
3. The company purchased a machine on July 1, 2010, at a cost of$450000. The machine has a salvage value of $25000 and a usefullife of 10 years. The company's bookkeeper recorded straight-linedepreciation in 2010 and 2011 but failed to consider the salvagevalue.
4. The company has failed to accrue sales commissions payable atthe end of each of the last 2 years, as follows.
December 31, 2011 $ 5,400
December 31, 2012 $ 4,600
5. In reviewing the December 31, 2011, inventory, the companydiscovered errors in its inventory-taking procedures that havecaused inventories for the last 3 years to be incorrect, asfollows. The company has already made an entry that established theincorrect December 31, 2012, inventory amount.
December 31, 2010 Understated $ 32,000
December 31, 2011 Understated $ 51,000
December 31, 2012 Overstated $ 9,500
6. At December 31, 2012, the company decided to change to thestraight -line method depreciation method on its retail displayequipment from double-declining-balance. The equipment had anoriginal cost of $250000 when purchased on January 1, 2011. It hasa salvage value of 0 and an 8-year useful life. Depreciationexpense recorded prior to 2012 under the double-declining-balancemethod was $62500. The company has already recorded 2012depreciation expense of $46875 using the double-declining-balancemethod.
7. Before the current year, the company accounted for its incomefrom long-term construction contracts on the completed-contractbasis. Early this year, the company changed to thepercentage-of-completion basis for accounting purposes butcontinues to use the completed-contract method for tax purposes.Income for the current year has been recorded using the new method.Prior year tax effects must be considered. The followinginformation is available.
Pretax Income
Percentage-of-Completion Completed-Contract
Prior to 2012 $320,000 $180,000
2012 $140,000 $120,000
Required:
Prepare the journal entries necessary at December 31, 2012, torecord the corrections and changes made to date related to theinformation provided. The books are still open for 2012. The incometax rate is 35%. The company has not yet recorded its 2012 incometax expense and payable amounts so current-year tax effects may beignored.
The Diamond Glitter Company is in the process of preparing itsfinancial statements for 2012. Assume that no entries fordepreciation have been recorded in 2012. The following informationrelated to depreciation of fixed assets is provided to you.
1. The company purchased equipment on January 2, 2009, for $165000.At that time, the equipment had an estimated useful life of 7 yearswith a $25000 salvage value. The equipment is depreciated on astraight-line basis. On January 2, 2012, as a result of additionalinformation, the company determined that the equipment has aremaining useful life of 3 years with a $15000 salvage value.
2. During 2012, the company changed from thedouble-declining-balance method for its building to thestraight-line method. The building originally cost $625000. It hada useful life of 10 years and a salvage value of $50000. Thefollowing computations present depreciation on both bases for 2010and 2011.
2011 2010
Straight-line $ 57,500 $ 57,500
Declining-balance $ 92,000 $ 115,000
3. The company purchased a machine on July 1, 2010, at a cost of$450000. The machine has a salvage value of $25000 and a usefullife of 10 years. The company's bookkeeper recorded straight-linedepreciation in 2010 and 2011 but failed to consider the salvagevalue.
4. The company has failed to accrue sales commissions payable atthe end of each of the last 2 years, as follows.
December 31, 2011 $ 5,400
December 31, 2012 $ 4,600
5. In reviewing the December 31, 2011, inventory, the companydiscovered errors in its inventory-taking procedures that havecaused inventories for the last 3 years to be incorrect, asfollows. The company has already made an entry that established theincorrect December 31, 2012, inventory amount.
December 31, 2010 Understated $ 32,000
December 31, 2011 Understated $ 51,000
December 31, 2012 Overstated $ 9,500
6. At December 31, 2012, the company decided to change to thestraight -line method depreciation method on its retail displayequipment from double-declining-balance. The equipment had anoriginal cost of $250000 when purchased on January 1, 2011. It hasa salvage value of 0 and an 8-year useful life. Depreciationexpense recorded prior to 2012 under the double-declining-balancemethod was $62500. The company has already recorded 2012depreciation expense of $46875 using the double-declining-balancemethod.
7. Before the current year, the company accounted for its incomefrom long-term construction contracts on the completed-contractbasis. Early this year, the company changed to thepercentage-of-completion basis for accounting purposes butcontinues to use the completed-contract method for tax purposes.Income for the current year has been recorded using the new method.Prior year tax effects must be considered. The followinginformation is available.
Pretax Income
Percentage-of-Completion Completed-Contract
Prior to 2012 $320,000 $180,000
2012 $140,000 $120,000
Required:
Prepare the journal entries necessary at December 31, 2012, torecord the corrections and changes made to date related to theinformation provided. The books are still open for 2012. The incometax rate is 35%. The company has not yet recorded its 2012 incometax expense and payable amounts so current-year tax effects may beignored.
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Related questions
The Diamond Glitter Company is in the process of preparing itsfinancial statements for 2012. Assume that no entries fordepreciation have been recorded in 2012. The following informationrelated to depreciation of fixed assets is provided to you.
1. The company purchased equipment on January 2, 2009, for$165000. At that time, the equipment had an estimated useful lifeof 7 years with a $25000 salvage value. The equipment isdepreciated on a straight-line basis. On January 2, 2012, as aresult of additional information, the company determined that theequipment has a remaining useful life of 3 years with a $15000salvage value.
2. During 2012, the company changed from thedouble-declining-balance method for its building to thestraight-line method. The building originally cost $625000. It hada useful life of 10 years and a salvage value of $50000. Thefollowing computations present depreciation on both bases for 2010and 2011. | ||||
2011 | 2010 | |||
Straight-line | $ 57,500 | $ 57,500 | ||
Declining-balance | $ 92,000 | $ 115,000 | ||
3. The company purchased a machine on July 1, 2010, at a cost of$450000. The machine has a salvage value of $25000 and a usefullife of 10 years. The company's bookkeeper recorded straight-linedepreciation in 2010 and 2011 but failed to consider the salvagevalue. Ignore Tax effect.
4. The company has failed to accrue sales commissions payable atthe end of each of the last 2 years, as follows. | ||||
December 31, 2011 | $ 5,400 | |||
December 31, 2012 | $ 4,600 | |||
5. In reviewing the December 31, 2011, inventory, the companydiscovered errors in its inventory-taking procedures that havecaused inventories for the last 3 years to be incorrect, asfollows. The company has already made an entry that established theincorrect December 31, 2012, inventory amount. | ||||
December 31, 2010 | Understated | $ 32,000 | ||
December 31, 2011 | Understated | $ 51,000 | ||
December 31, 2012 | Overstated | $ 9,500 | ||
6. At December 31, 2012, the company decided to change to thestraight-line depreciation method on its retail display equipmentfrom double-declining-balance. The equipment had an original costof $250000 when purchased on January 1, 2011. It has a salvagevalue of 0 and a 8-year useful life. Depreciation expense recordedprior to 2012 under the double-declining-balance method was $62500.The company has already recorded 2012 depreciation expense of$46875 using the double-declining-balance method.
7. Before the current year, the company accounted for its incomefrom long-term construction contracts on the completed-contractbasis. Early this year, the company changed to thepercentage-of-completion basis for accounting purposes, butcontinues to use the completed-contract method for tax purposes.Income for the current year has been recorded using the new method.Prior year tax effects must be considered. The followinginformation is available. | ||||
Pretax Income | ||||
Percentage-of-Completion | Completed-Contract | |||
Prior to 2012 | $320,000 | $180,000 | ||
2012 | $140,000 | $120,000 | ||
Required: | |||
Prepare the journal entries necessary at December 31, 2012 torecord the corrections and changes made to date related to theinformation provided. The books are still open for 2012. The incometax rate is 35%. The company has not yet recorded its 2012 incometax expense and payable amounts so current-year tax effects may beignored. | |||
Comparing Three Depreciation Methods
Waldum Company purchased packaging equipment on January 5, 2012,for $135,000. The equipment was expected to have a useful life ofthree years, or 18,000 operating hours, and a residual value of$13,500. The equipment was used for 8,600 hours during 2012, 5,300hours in 2013, and 4,100 hours in 2014.
Required:
1. Determine the amount of depreciation expensefor the years ended December 31, 2012, 2013, and 2014, by (a) thestraight-line method, (b) units-of-output method, and (c) thedouble-declining-balance method. Also determine the totaldepreciation expense for the three years by each method.
Note: FOR DECLINING BALANCE ONLY, round the multiplier to fourdecimal places. Then round the answer for each year to the nearestwhole dollar.
| DepreciationExpense | ||||||
|---|---|---|---|---|---|---|
| Year | Straight-LineMethod | Units-of-OutputMethod | Double-Declining-BalanceMethod | |||
| 2012 | $ | $ | $ | |||
| 2013 | $ | $ | $ | |||
| 2014 | $ | $ | $ | |||
| Total | $ | $ | $ | |||
