Answer:
<u>Requirement 1:</u>
Dr Accumulated Depreciation $9,600
Cr Retained Earnings Account $9,600
<u>Requirement 2:</u>
Dr Depreciation Expense $6,000
Cr Accumulated Depreciation $6,000
Explanation:
Year Remaining Life of machine Depreciation fraction
1 5 5/15
2 4 4/15
3 3 3/15
4 2 2/15
5 <u> 1 </u> 1/15
Total 15
Now here, the depreciation formula is as under:
Depreciation expense = (Cost - Salvage Value) * Fraction value
<u>Year 2019:</u>
The sum of years digit fraction would be 5/15 and the cost of the machinery is $36,000. So
Depreciation Expense = ($36,000 - 0) * 5/15 = $12,000
<u>Year 2020:</u>
The sum of years digit fraction would be 5/15 and the cost of the machinery is $36,000. So
Depreciation Expense = ($36,000 - 0) * 4/15 = $9,600
<u>Year 2021:</u>
Now in this year the there is change in estimate and a switch in the use of the depreciation method, which is now straight line method. The change in estimate only includes the useful life of the asset which is 6 years from the date of purchase.
So for straight-line depreciation:
Depreciation Expense = (Cost - Salvage Value) / Useful Life
By simply putting values, we have:
Depreciation Expense = $36,000 / 6 years = $6,000 per year
So this means, according to change in accounting policy, the excess depreciation charged must be eliminated from the previous years. The depreciation charge for the previous 2 years must be $12,000 and the excess depreciation charge is calculated as under:
Carrying value of the asset = $21,600 - $12,000 = $9,600
<u>Requirement 1:</u>
The double entry according to the US GAAP, for the excess depreciation charge in the previous years would be the waiving off of retained earnings with the excess depreciation amount calculated above.
Dr Accumulated Depreciation $9,600
Cr Retained Earnings Account $9,600
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<u>Requirement 2:</u>
The depreciation expense for the year 2021, would be recorded as under:
Dr Depreciation Expense $6,000
Cr Accumulated Depreciation $6,000
