(Change in Estimate and Error Correction) Holtzman Company is in the process of preparing its financial statements for 2017. Assume that no entries for depreciation have been recorded in 2017. The followinginformation related to depreciation of fixed assets is provided to you.1. Holtzman purchased equipment on January 2, 2014, for $85,000. At that 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, 2017, 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.2. During 2017, 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 2015 and 2016. 2016 2015 Straight-line $27,000 $27,000 Declining-balance 48,000 60,000 3. Holtzman purchased a machine on July 1, 2015, at a cost of $120,000. The machine has a salvage value of $16,000 and a useful life of 8 years. Holtzman’s bookkeeper recorded straight-line depreciation in 2015 and 2016 but failed to consider the salvage value.Instructions(a) Prepare the journal entries to record depreciation expense for 2017 and correct any errors made to date related to the information provided. (Ignore taxes.)(b) Show comparative net income for 2016 and 2017. Income before depreciation expense was $300,000 in 2017, and was $310,000 in 2016. (Ignore taxes.)
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
(Change in Estimate and Error Correction) Holtzman Company is in the process of preparing its financial statements for 2017. Assume that no entries for depreciation have been recorded in 2017. The following
information related to depreciation of fixed assets is provided to you.
1. Holtzman purchased equipment on January 2, 2014, for $85,000. At that 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, 2017, 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.
2. During 2017, 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 2015 and 2016.
| 2016 | 2015 | |
| Straight-line | $27,000 | $27,000 |
| Declining-balance | 48,000 | 60,000 |
3. Holtzman purchased a machine on July 1, 2015, at a cost of $120,000. The machine has a salvage value of $16,000 and a useful life of 8 years. Holtzman’s bookkeeper recorded straight-line depreciation in 2015 and 2016 but failed to consider the salvage value.
Instructions
(a) Prepare the
(b) Show comparative net income for 2016 and 2017. Income before depreciation expense was $300,000 in 2017, and was $310,000 in 2016. (Ignore taxes.)
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