Question

For financial reporting, Clinton Poultry Farms has used the declining-balance method of depreciation for conveyor equipment acquired at the beginning of 2013 for $2,784,000. Its useful life was estimated to be six years with a $216,000 residual value. At the beginning of 2016, Clinton decides to change to the straight-line method. The effect of this change on depreciation for each year is as follows ($ in 000s):

Year Straight-Line Declining Balance Difference
2013 $ 428 $ 928 $ 500
2014 428 618 190
2015 428 413 (15 )
$ 1,284 $ 1,959 $ 675
Required:
Prepare any 2016 journal entry related to the change. (Enter your answers in dollars rounded to the nearest thousand. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Record the adjusting entry for depreciation in 2016.

Answer 1

Answer and Explanation:

The Journal entry is shown below:-

No journal entry related to change

Adjusting entry for depreciation expense will be made at end of December 31,2016

Working note:-

Assets cost $2,784,000

Less:Accumulated depreciation $1,959,000

Book value as on Jan 1,2016 $825,000

less :Estimated residual value $216,000

Depreciated over the remaining

3 years $609,000

Depreciation expense

under straight line $203,000

($203,000 ÷ 3)

Depreciation expense $203 ,000

To Accumulated depreciation equipment $203,000

(Being depreciation expense is recorded)

Therefore for recording the depreciation we simply debited the depreciation expense and credited the accumulated depreciation equipment.