Question

Joy Cunningham Co. purchased a machine on January 1, 2015, for $550,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2018, the firm’s accountant found that the entry for depreciation expense had been omitted in 2016. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2018. 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, 2018, to record these events. (Ignore tax effects.)

Short answer

Depreciation is debited, and accumulated depreciation is credited to record the journal entry for omission and method change. The sum of year method depreciation to record the omission is $90,000, and straight-line depreciation to record the depreciation of 2018 is $40,000.

Step-by-step solution

Calculation of Depreciation

Sum of year Method

Year	Digits	Depreciation	WDV
2015	10	100,000	450,000
2016	9	90,000	360,000
2017	8	80,000	280,000
2018	7	70,000	210,000
2019	6	60,000	150,000
2020	5	50,000	100,000
2021	4	40,000	60,000
2022	3	30,000	30,000
2023	2	20,000	10,000
2024	1	10,000	-
	55

Journal Entry

Date	Particulars	Debit ($)	Credit ($)
	Depreciation	90,000
	Accumulated Depreciation- Equipment		90,000
	(Being depreciation recorded for omission )

Straight Line depreciation

$$\begin{gathered} \mathbf{Depreciation}\mathbf{}\mathbf{expense}\mathbf{=}\frac{\mathbf{WDV}\mathbf{}\mathbf{as}\mathbf{}\mathbf{on}\mathbf{}\mathbf{Jan}\mathbf{1}\mathbf{,}\mathbf{2018}}{\mathbf{Balance}\mathbf{}\mathbf{Useful}\mathbf{}\mathbf{Life}} \\ \mathbf{=}\frac{\mathbf{280}\mathbf{,}\mathbf{000}}{\mathbf{10}\mathbf{-}\mathbf{3}} \\ \mathbf{=}\mathbf{\$}\mathbf{40}\mathbf{,}\mathbf{000} \end{gathered}$$

Date	Particulars	Debit ($)	Credit ($)
	Depreciation	40,000
	Accumulated Depreciation- Equipment		40,000
	(Being depreciation recorded for 2018)