Chapter 20 Homework

Chapter 20 Homework - Problem 20-6 Requirement 1 A change...

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Problem 20-6 Requirement 1 A change in depreciation method is considered a change in accounting estimate resulting from a change in accounting principle. In other words, a change in the depreciation method is similar to changing the economic useful life of a depreciable asset, and therefore the two events should be reported the same way. Accordingly, Faulkner reports the change prospectively; previous financial statements are not revised. Instead, the company simply employs the straight-line method from then on. The undepreciated cost remaining at the time of the change would be depreciated straight-line over the remaining useful life. Asset’s cost $21,000 Accumulated depreciation (SYD) to date (given) (6,909 ) Undepreciated cost, Jan. 1, 2009 $14,091 Estimated residual value (1,000 ) To be depreciated over remaining 8 years $13,091 8 years Annual straight-line depreciation 2009-13 $ 1,636 Adjusting entry (2009 depreciation): Depreciation expense (calculated above). ..................................... 1636 Accumulated depreciation. ................................................... 1636 A disclosure note should justify that the change is preferable and describe the effect of a change on any financial statement line items and per share amounts affected for all periods reported.
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Problem 20-6 (concluded) Requirement 2 If Faulkner switched to sum-of-the-years’-digits with 8 years remaining, it reports the change prospectively; previous financial statements are not revised. Instead, the company employs the SYD method from then on. The undepreciated cost remaining at the time of the change would be depreciated by the SYD method over the remaining useful life. Asset’s cost $21,000 Accumulated depreciation (S-L) to date (given) (4,000 ) Undepreciated cost, Jan. 1, 2009 $17,000 Estimated residual value (1,000 ) To be depreciated over remaining 8 years $16,000 x 8 / 36* SYD depreciation 2009 $ 3,556 * n (n + 1) / 2 = 8 (9) / 2 = 36 Adjusting entry (2009 depreciation): Depreciation expense (calculated above). ..................................... 3556 Accumulated depreciation. ................................................... 3556 A disclosure note should justify that the change is preferable and describe the effect of the change on any financial statement line items and per share amounts affected for all periods reported.
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Problem 20-7 Requirement 1 Cost of mineral mine : Purchase price $1,600,000 Development costs 600,000 $2,200,000 Depletion : $2,200,000 100,000 Depletion per ton = = $5.25 per ton 400,000 tons 2009 depletion = $5.25 x 50,000 tons = $262,500 2010 depletion: Revised depletion rate = ($2,200,000 262,500) 100,000 = $4.20 487,500 - 50,000 tons 2010 depletion = $4.20 x 80,000 tons = $336,000 Depreciation: Structures: $150,000 Depreciation per ton = = $.375 per ton 400,000 tons 2009 depreciation = $.375 x 50,000 tons = $18,750 2010 depreciation: Revised depreciation rate = $150,000 18,750 = $.30 487,500 50,000 tons
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2010 depreciation = $.30 x 80,000 tons = $24,000
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Chapter 20 Homework - Problem 20-6 Requirement 1 A change...

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