20-24

Name: SOLUTION Enter the appropriate amounts in the shaded cells in columns D, F, J and L.

1)

Computation of Annual Depreciation - Machine A (a) Cost Life $ 30,000 15 $ Journal Entries - Machine A (a) Machine A Accumulated Depreciation - Machinery Retained Earnings Depreciation Expense Accumulated Depreciation - Machinery

2,000

30,000 10,000 20,000 2,000 2,000

2)

Computation of 2002 Depreciation Expense - Machine B (b) Original cost Accumulated depreciation to 1/1/02 Book value, 1/1/02 Estimated residual value Remaining depreciable base Remaining useful life Depreciation expense, 2002 Journal Entries - Machine A (b) Depreciation Expense Accumulated Depreciation - Machinery

$ 105,000 35,000 $ 70,000 5,000 $ 65,000 4 $ 16,250

16,250 16,250

In column F, a fraction can be entered by placing an "=" in front. For example, =5/15. Computation of Depreciation Difference - Building A (c) Sum-of-the-years'-digits depreciation Cost x Fraction 1999 $ 600,000 9.52% $ 57,143 2000 $ 600,000 9.05% 54,286 2001 $ 600,000 8.57% 51,429 $ 162,858 Journal Entries - Building A (c) Cumulative Effect of Change in Accounting Principle - Depreciation Method Accumulated Depreciation - Machinery Depreciation Expense Accumulated Depreciation - Machinery 2) Computation of Incomes for 2002 and 2001 Income before depreciation expense, 2002 Depreciation for 2002: Machine A Machine B

Straight-Line $ 30,000 30,000 30,000 $ 90,000

Difference

$ 72,858

72,858 72,858 48,571 48,571

$ 520,000 $ 2,000 16,250

Building A Other Income after depreciation Income before error correction, 2001 Error correction - Machine A (enter as a negative) Income after error correction Brillantez Electronics Comparative Income Statements (Partial) For Years 2002 and 2001

48,571 50,000

116,821 $ 403,179 $ 415,000 (2,000) $ 413,000

2002 Income before cumulative effect of change in accounting principle Cumulative effect on prior years of retroactive application of new depreciation method Net income Pro forma net income Income after error correction Excess of sum-of-the-years'-digits depreciation over straight-line Net income $ 403,179 (72,858) $ 330,321

2001 $ 413,000

$ 413,000 2001 $ 413,000 (21,429) $ 391,571