Question

Kathleen Cole Inc. acquired the following assets in January of 2015.

Equipment, estimated service life, 5 years; salvage value, \(15,000 \)525,000

Building, estimated service life, 30 years; no salvage value $693,000

The equipment has been depreciated using the sum-of-the-years’-digits method for the first 3 years for financial reporting purposes. In 2018, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight-line method.

Instructions (a) Prepare the general journal entry to record depreciation expenses for the equipment in 2018.

(b) Prepare the journal entry to record depreciation expenses for the building in 2018. (Round all computations to two decimal places.)

Short answer

The depreciation expense of equipment for 2018 is $51,000 and of building for 2018 is $16,857.

Step-by-step solution

Journal for Part A

$$\begin{gathered} \mathbf{Accumulated}\mathbf{}\mathbf{}\mathbf{Depreciation}\mathbf{=}\mathbf{(}\mathbf{Cost}\mathbf{-}\mathbf{Salvage}\mathbf{}\mathbf{Value}\mathbf{)}\mathbf{\times }\mathbf{Time}\mathbf{}\mathbf{period} \\ \mathbf{=}\mathbf{(}\mathbf{525}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{15}\mathbf{,}\mathbf{000}\mathbf{)}\mathbf{\times }\frac{\mathbf{12}}{\mathbf{15}} \\ \mathbf{=}\mathbf{\$}\mathbf{408}\mathbf{,}\mathbf{000} \\ \mathbf{Depreciation}\mathbf{}\mathbf{of}\mathbf{}\mathbf{}\mathbf{2018}\mathbf{=}\frac{\mathbf{Depreciable}\mathbf{}\mathbf{cost}}{\mathbf{Time}\mathbf{}\mathbf{}\mathbf{period}} \\ \mathbf{=}\frac{\mathbf{525}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{15}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{408}\mathbf{,}\mathbf{000}}{\mathbf{2}} \\ \mathbf{=}\mathbf{\$}\mathbf{51}\mathbf{,}\mathbf{000} \end{gathered}$$

Date	Particulars	Debit ($)	Credit ($)
	Depreciation Expense	51,000
	Accumulated Depreciation- Equipment		51,000
	(Being Depreciation expense recorded)

Journal Entry for part B

$$\begin{gathered} \mathbf{Accumulated}\mathbf{}\mathbf{depreciation}\mathbf{=}\mathbf{Cost}\mathbf{\times }\mathbf{Time}\mathbf{}\mathbf{period} \\ \mathbf{=}\mathbf{693}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{3}}{\mathbf{30}} \\ \mathbf{=}\mathbf{\$}\mathbf{69}\mathbf{,}\mathbf{300} \\ \mathbf{Depreciation}\mathbf{}\mathbf{of}\mathbf{}\mathbf{2018}\mathbf{=}\frac{\mathbf{Depreciable}\mathbf{}\mathbf{cost}}{\mathbf{Time}\mathbf{}\mathbf{period}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{693}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{69}\mathbf{,}\mathbf{300}}{\mathbf{37}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{16}\mathbf{,}\mathbf{857} \end{gathered}$$

Date	Particulars	Debit ($)	Credit ($)
	Depreciation Expense	16,857
	Accumulated Depreciation- Building		16,857
	(Being Depreciation expense recorded)