Accounting, Name:
Solution
Date:
Instructor:
Course:
Intermediate 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E22-9 (Error and Change in EstimateDepreciation) Tarkington Co. purchased a machine on
January 1, 2009, for
$440,000.00 At that time it was estimated that the machine would
have a
10
-year life and no salvage value. On December 31, 2012, the firms
accountant found that the entry for depreciation expense had been omitted in 2010. In addition,
management has informed the accountant that the company plans to switch to straight-line depreciation,
starting with the year 2012. At present, the company uses the sum-of-the-years-digits method for
depreciating equipment.
Instructions:
Prepare the general journal entries that should be made at December 31, 2012, to record these events.
(Ignore tax effects.)
Dec 31, 12
Retained Earnings [$440,000 (9/55)]
Accumulated DepreciationMachinery
To correct for the omission of depreciation expense in 2010
Cost of Machine
Less: Depreciation prior to 2012
Sum-of-the-years-digits depreciation
2009
[$440,000 (10/55)]
2010
[$440,000 (9/55)]
2011
[$440,000 (8/55)]
Book Value at January 1, 2012
72,000
72,000
$440,000
$80,000
72,000
64,000
Depreciation for 2012:
Dec 31, 12
Depreciation Expense
Accumulated DepreciationEquipment
To record depreciation expense for 2012
216,000
$224,000
7
$32,000
32,000
32,000
d8df7b862ba6d06e23c1d7679927f5e70c164168.xlsx, Exercise 22-9 Solution, Page 1 of 8, 03/29/2012, 01:32:37
Name:
Date:
Instructor:
Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E22-9 (Error and Change in EstimateDepreciation) Tarkington Co. purchased a machine on
January 1, 2009, for
$440,000.00 At that time it was estimated that the machine would
have a
10
-year life and no salvage value. On December 31, 2012, the firms
accountant found that the entry for depreciation expense had been omitted in 2010. In addition,
management has informed the accountant that the company plans to switch to straight-line depreciation,
starting with the year 2012. At present, the company uses the sum-of-the-years-digits method for
depreciating equipment.
Instructions:
Prepare the general journal entries that should be made at December 31, 2012, to record these events.
(Ignore tax effects.)
Dec 31, 12
Account title
Account title
Text entry as appropriate
Cost of Machine
Less: Depreciation prior to 2012
Sum-of-the-years-digits depreciation
2009
Formula
2010
Formula
2011
Formula
Book Value at January 1, 2012
Amount
Amount
Amount
Formula
Formula
Formula
Depreciation for 2012:
Dec 31, 12
Account title
Account title
Text entry as appropriate
Formula
Formula
Number
Formula
Amount
Amount
d8df7b862ba6d06e23c1d7679927f5e70c164168.xlsx, Exercise 22-9, Page 2 of 8, 03/29/2012, 01:32:37
Name:
Solution
Date:
Instructor:
Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E22-11 (Change in EstimateDepreciation) Thurber Co. purchased equipment for
$710,000
which was estimated to have a useful life of
10
years with a salvage value of
$10,000
at the end of that time. Depreciation has been entered for
7
years on a straight-line basis. In 2013, it is determined that the total estimated life should be
15
years with a salvage value of
$4,000
at the end of that time.
Instructions:
(a) Prepare the entry (if any) to correct the prior years' depreciation.
No entry necessary.
Changes in estimates are treated prospectively.
(b) Prepare the entry to record depreciation for 2013.
Depreciation Expense
Accumulated DepreciationEquipment
27,000
Worksheet - Original cost
Accumulated depreciation [(($710,000 $10,000) 10 yrs) 7 yrs]
Book value (1/1/13)
Estimated salvage value
Remaining depreciable basis
Remaining useful life (15 years - 7 years)
Depreciation expense2013
27,000
$710,000
(490,000)
220,000
(4,000)
216,000
8
$27,000
d8df7b862ba6d06e23c1d7679927f5e70c164168.xlsx, Exercise 22-11 Solution, Page 3 of 8, 03/29/2012, 01:32:38
Name:
Date:
Instructor:
Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E22-11 (Change in EstimateDepreciation) Thurber Co. purchased equipment for
$710,000
which was estimated to have a useful life of
10
years with a salvage value of
$10,000
at the end of that time. Depreciation has been entered for
7
years on a straight-line basis. In 2013, it is determined that the total estimated life should be
15
years with a salvage value of
$4,000
at the end of that time.
Instructions:
(a) Prepare the entry (if any) to correct the prior years' depreciation.
Account Title as appropriate
Account Title as appropriate
Amount
Amount
(b) Prepare the entry to record depreciation for 2013.
Account Title
Account Title
Worksheet - Original cost
Accumulated depreciation
Title
Estimated salvage value
Title
Remaining useful life
Title
Amount
Amount
Amount
Amount
Formula
Amount
Formula
Number
Formula
d8df7b862ba6d06e23c1d7679927f5e70c164168.xlsx, Exercise 22-11, Page 4 of 8, 03/29/2012, 01:32:38
Name:
Solution
Date:
Instructor:
Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
P22-1 (Change in Estimate and Error Correction) Holtzman Company is in the process of preparing its
financial statements for 2012. Assume that no entries for depreciation have been recorded in 2012. The
following information related to depreciation of fixed assets is provided to you.
1. Holtzman purchased equipment on Jan 2, 2009, for
$85,000
At the time, the equipment
had an estimated useful life of
10
years with a
$5,000
salvage value. The equipment
is depreciated on a straight-line basis. On January 2, 2012, as a result of additional information, the
company determined that the equipment has a remaining useful life of
4
years with a
$3,000
salvage value.
During 2012, Holtzman changed from the double-declining balance method for its building to the
straight-line method. The building originally cost
$300,000 It had a useful life of
10
years and a salvage value of
$30,000
The following computations
present depreciation on both bases for 2010 and 2011.
2011
2010
Straight-line
$27,000
$27,000
Declining balance
$48,000
$60,000
3. Holtzman purchased a machine on July 1, 2010, at a cost of
$120,000 The machine
has a salvage value of
and a useful life of
years.
$16,000
8
Holtzmans bookkeeper recorded straight-line depreciation in 2010 and 2011 but failed to consider the
salvage value.
Instructions:
(a) Prepare the journal entries to record depreciation expense for 2012 and correct any errors made
to date related to the information provided.
(1)
Cost of equipment
Less: Salvage value
Depreciable cost
$85,000
5,000
$80,000
Depreciation to 2012
2009
$80,000
2010
80,000
2011
80,000
10
10
10
$8,000
8,000
8,000
$24,000
Depreciation in 2012
Cost of equipment
Less: Depreciation to 2012
Book value, January 1, 2012
Less: Salvage value
Depreciable cost
$85,000
24,000
61,000
3,000
$58,000
Remaining years
Depreciation in 2012
4
$14,500
Depreciation expense
Accumulated Depreciation - Equipment
(2)
Cost of building
Less: Depreciation to 2012
2010
2011
Book value, January 1, 2012
Less: Salvage value
Depreciable cost
14,500
14,500
$300,000
60,000
48,000
$192,000
30,000
$162,000
Remaining years
Depreciation in 2012
8
$20,250
Depreciation expense
Accumulated Depreciation - Buildings
(3)
20,250
Depreciation expense [($120,000 - $16,000) / 8]
Accumulated Depreciation - Machinery
13,000
20,250
Accumulated Depreciation - Machinery
Retained Earnings
3,000
3,000
Depreciation recorded in 2010: [$120,000 8 (1/2)]
Depreciation that should be recorded in 2010:
[($120,000 $16,000) 8 (1/2)]
Depreciation recorded in 2011: ($120,000 / 8)
Depreciation that should be recorded in 2011:
[($120,000 $16,000) 8]
2010
2011
Depreciation
taken
$7,500
15,000
$22,500
Depreciation
that should
be taken
$6,500
13,000
$19,500
13,000
$7,500
6,500
15,000
13,000
Differences
$1,000
2,000
$3,000
(b) Show comparative net income for 2011 and 2012. Income before depreciation expense was
$300,000
in 2012, and was
$310,000 in 2011. Ignore taxes.
HOLTZMAN COMPANY
Comparative Income Statements
For the Years 2012 and 2011
Income before depreciation expense
Depreciation Expense
Net income
Depreciation Expense
Equipment
Building
Machine
2012
$300,000
47,750
$252,250
2011
$310,000
69,000
$241,000
2012
$14,500
20,250
13,000
$47,750
2011
$8,000
48,000
13,000
$69,000
d8df7b862ba6d06e23c1d7679927f5e70c164168.xlsx, Problem 22-1 Solution, Page 5 of 8, 03/29/2012 , 01:32:38
Name:
Date:
Instructor:
Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
P22-1 (Change in Estimate and Error Correction) Holtzman Company is in the process of preparing its
financial statements for 2012. Assume that no entries for depreciation have been recorded in 2012. The
following information related to depreciation of fixed assets is provided to you.
1. Holtzman purchased equipment on Jan 2, 2009, for
$85,000
At the time, the equipment
had an estimated useful life of
10
years with a
$5,000
salvage value. The equipment
is depreciated on a straight-line basis. On January 2, 2012, as a result of additional information, the
company determined that the equipment has a remaining useful life of
4
years with a
$3,000
salvage value.
During 2012, Holtzman changed from the double-declining method balance for its building to the
straight-line method. The building originally cost
$300,000 It had a useful life of
10
years and a salvage value of
$30,000
The following computations
present depreciation on both bases for 2010 and 2011.
2011
2010
Straight-line
$27,000
$27,000
Declining balance
$48,000
$60,000
3. Holtzman purchased a machine on July 1, 2010, at a cost of
$120,000 The machine
has a salvage value of
and a useful life of
years.
$16,000
8
Holtzmans bookkeeper recorded straight-line depreciation in 2010 and 2011 but failed to consider the
salvage value.
Instructions:
(a) Prepare the journal entries to record depreciation expense for 2012 and correct any errors made
to date related to the information provided.
(1)
Cost of equipment
Less: Salvage value
Depreciable cost
Depreciation to 2012
2009
Amount
2010
Amount
2011
Amount
Amount
Amount
Formula
Number
Number
Number
Formula
Formula
Formula
Formula
Depreciation in 2012
Cost of equipment
Less: Depreciation to 2012
Book value, January 1, 2012
Less: Salvage value
Depreciable cost
Amount
Amount
Formula
Amount
Formula
Remaining years
Depreciation in 2012
Number
Formula
Account title
Account title
(2)
Amount
Amount
Cost of building
Less: Depreciation to 2012
2010
2011
Book value, January 1, 2012
Less: Salvage value
Depreciable cost
Amount
Amount
Amount
Formula
Amount
Formula
Remaining years
Depreciation in 2012
Number
Formula
Account title
Account title
Account title
Account title
Amount
Account title
Account title
Amount
Depreciation recorded in 2010: [$120,000 8 * (1/2)]
Depreciation that should be recorded in 2010:
[($120,000 $16,000) 8 * (1/2)]
Depreciation recorded in 2011: ($120,000 / 8)
Depreciation that should be recorded in 2011:
[($120,000 $16,000) 8]
(3)
Amount
Amount
2010
2011
Amount
Amount
Amount
Amount
Amount
Amount
Depreciation
Depreciation that should
Differences
taken
be taken
Amount
Amount
Formula
Amount
Amount
Formula
Formula
Formula
Formula
(b) Show comparative net income for 2011 and 2012. Income before depreciation expense was
$300,000
in 2012, and was
$310,000 in 2011. Ignore taxes.
HOLTZMAN COMPANY
Comparative Income Statements
For the Years 2012 and 2011
Income before depreciation expense
Depreciation Expense
Net income
Depreciation Expense
Equipment
Building
Machine
2012
Amount
Amount
Formula
2011
Amount
Amount
Formula
2012
Amount
Amount
Amount
Formula
2011
Amount
Amount
Amount
Formula
d8df7b862ba6d06e23c1d7679927f5e70c164168.xlsx, Problem 22-1, Page 6 of 8, 03/29/2012 , 01:32:39
Name:
Solution
Date:
Instructor:
Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
P22-6 (Accounting Change and Error Analysis) On December 31, 2012, before the books were closed,
the management and accountants of Madrasa Inc. made the following determinations about three
depreciable assets.
1. Depreciable asset A was purchased January 2, 2009. It originally cost
$540,000
and, for depreciation purposes, the straight-line method was originally chosen. The asset was originally
expected to be useful for
10
years and have a zero salvage value. In 2012, the
decision was made to change the depreciation method from straight-line to sum-of-years'-digits, and
the estimates relating to useful life and salvage value remained unchanged.
2. Depreciable asset B was purchased January 3, 2008. It originally cost
$180,000
and, for depreciation purposes, the straight-line method was chosen. The asset was originally
expected to be useful for
15
years and have a zero salvage value. In 2012, the
decision was made to shorten the total life of this asset to
9
years and to
estimate the salvage value at
$3,000
3. Depreciable asset C was purchased January 5, 2008. The asset's original cost was
$160,000
and this amount was entirely expensed in 2008. This particular asset has a 10-year useful life and no
salvage value. The straight-line method was chosen for depreciation purposes.
Additional data:
1. Income in 2012 before depreciation expense amount to
$400,000
2. Depreciation expense on assets other than A, B, and C totaled
$55,000
in 2012.
3. Income in 2011 was reported at
$370,000
4. Ignore all income tax effects.
5.
100,000
shares of common stock were outstanding in 2011 and 2012.
Instructions:
(a) Prepare all necessary entries in 2012 to record these determinations.
(1)
Depreciation Expense [$378,000 (7/28)]
Accumulated DepreciationAsset A
94,500
94,500
Computations:
Cost of Asset A
Less: Depreciation prior to 2012
Book value, January 1, 2012
$540,000
162,000
$378,000
Depreciation factor
Depreciation for 2012
(2)
0.25
$94,500
Depreciation Expense
Accumulated DepreciationEquipment
Computations:
Original cost
Less: Accumulated depreciation ($12,000 4 years)
Book value, January 1, 2012
Estimated salvage value
Remaining depreciable base
25,800
25,800
$180,000
(48,000)
132,000
(3,000)
$129,000
Remaining useful life
Depreciation expense 2012
(3)
5
$25,800
Asset C
Accumulated DepreciationAsset C ($16,000 4)
Retained Earnings
Depreciation Expense
Accumulated DepreciationAsset C
160,000
64,000
96,000
16,000
16,000
(b) Prepare comparative retained earnings statements for Madrasa Inc. for 2011 and 2012. The
company had retained earnings of
$200,000 at December 31, 2010.
MADRASA INC.
Comparative Retained Earnings Statements
For the Years Ended
2012
2011
Balance, January 1, as previously reported
$200,000
Add: Error in recording Asset C
112,000
Retained earnings, January 1, as adjusted
666,000
312,000
Add: Net income (See Cell G86 and Cell G89)
208,700
354,000
Retained earnings, December 31
$874,700
$666,000
Amount expensed incorrectly in 2008
Depreciation to be taken to January 1, 2011
Prior period adjustment for income
Income before depreciation expense 2012
Depreciation for 2012
Asset A
Asset B
Asset C
Other
Income after depreciation expense
Net income as reported
Depreciation - Asset C
Net income as adjusted
$160,000
(48,000)
112,000
400,000
$94,500
25,800
16,000
55,000
(191,300)
$208,700
$370,000
(16,000)
$354,000
d8df7b862ba6d06e23c1d7679927f5e70c164168.xlsx, Problem 22-6 Solution, Page 7 of 8, 03/29/2012, 01:32:39
Name:
Date:
Instructor:
Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
P22-6 (Accounting Change and Error Analysis) On December 31, 2012, before the books were closed,
the management and accountants of Madrasa Inc. made the following determinations about three
depreciable assets.
1. Depreciable asset A was purchased January 2, 2009. It originally cost
$540,000
and, for depreciation purposes, the straight-line method was originally chosen. The asset was originally
expected to be useful for
10
years and have a zero salvage value. In 2012, the
decision was made to change the depreciation method from straight-line to sum-of-years'-digits, and
the estimates relating to useful life and salvage value remained unchanged.
2. Depreciable asset B was purchased January 3, 2008. It originally cost
$180,000
and, for depreciation purposes, the straight-line method was chosen. The asset was originally
expected to be useful for
15
years and have a zero salvage value. In 2012, the
decision was made to shorten the total life of this asset to
9
years and to
estimate the salvage value at
$3,000
3. Depreciable asset C was purchased January 5, 2008. The asset's original cost was
$160,000
and this amount was entirely expensed in 2008. This particular asset has a 10-year useful life and no
salvage value. The straight-line method was chosen for depreciation purposes.
Additional data:
1. Income in 2012 before depreciation expense amount to
$400,000
2. Depreciation expense on assets other than A, B, and C totaled
$55,000
in 2012.
3. Income in 2011 was reported at
$370,000
4. Ignore all income tax effects.
5.
100,000
shares of common stock were outstanding in 2011 and 2012.
Instructions:
(a) Prepare all necessary entries in 2012 to record these determinations.
(1)
Account title
Account title
Amount
Amount
Computations:
Cost of Asset A
Less: Depreciation prior to 2012
Book value, January 1, 2012
Depreciation factor
Depreciation for 2012
(2)
Amount
Formula
Formula
Number
Formula
Account title
Account title
Computations:
Original cost
Less: Accumulated depreciation
Book value, January 1, 2012
Estimated salvage value
Remaining depreciable base
Amount
Amount
Amount
Amount
Formula
Amount
Formula
Remaining useful life
Depreciation expense 2012
(3)
Number
Formula
Account title
Account title
Account title
Amount
Account title
Account title
Amount
Amount
Amount
Amount
(b) Prepare comparative retained earnings statements for Madrasa Inc. for 2011 and 2012. The
company had retained earnings of
$200,000 at December 31, 2010.
MADRASA INC.
Comparative Retained Earnings Statements
For the Years Ended
2012
2011
Balance, January 1, as previously reported
Amount
Add: Error in recording Asset C
Amount
Retained earnings, January 1, as adjusted
Amount
Formula
Add: Net income
Amount
Amount
Retained earnings, December 31
Formula
Formula
Amount expensed incorrectly in 2008
Depreciation to be taken to January 1, 2011
Prior period adjustment for income
Income before depreciation expense 2012
Depreciation for 2012
Asset A
Asset B
Asset C
Other
Income after depreciation expense
Net income as reported
Depreciation - Asset C
Net income as adjusted
Amount
Amount
Formula
Amount
Amount
Amount
Amount
Amount
Formula
Formula
Amount
Amount
Formula
d8df7b862ba6d06e23c1d7679927f5e70c164168.xlsx, Problem 22-6, Page 8 of 8, 03/29/2012, 01:32:42