Question

On January 1, 2019, the Harold Company purchased equipment at a cost of $400,000. The equipment was expected to have a service life of 10 years and a $20,000 residual value. The company’s fiscal year-end is December 31, and the double-declining balance (DDB) depreciation method is used. At the beginning of 2021, the company switched from the DDB to the straight-line method. In 2021, the adjusting entry to depreciation expense is:________

Answer 1

Answer:

In 2021, the adjusting entry to depreciation expense is $29500.

Explanation:

First we will calculate by what factor depreciation is taking place in year 2019 and 2020. (double-declining balance (DDB) depreciation method)

Formula:

(100% / Useful life) * 2

In our case useful life is 10 years

(100% / 10) * 2 = 20% by which depreciation is taking place in year 2019 and 2020.

In 2019 deprecation =$400,000 * 20% = $80,000

Equipment price in 2020= Actual Price in 2019 - deprecation in 2019

Equipment price in 2020 = $400,000 - $80,000

Equipment price in 2020 = $320,000

In 2020 deprecation =$320,000 * 20% = $64000

Equipment price at start of 2021= Equipment price in 2020 -  deprecation in 2020

Equipment price at start of 2021= $320,000 -  $64000

Equipment price at start of 2021= $256,000

Residual value= $20,000

Deprecation amount= Equipment price at start of 2021 - Residual value

Deprecation amount=$256,000 - $20,000

Deprecation amount=$236,000

Remaining years are 8.

So annual depreciation = $236,000/8

annual depreciation = $29500

In 2021, the adjusting entry to depreciation expense is $29500.