Collins Corporation purchased office equipment at the beginning of 2022 and capitalized a cost of $1,936,000. This cost figure included the following expenditures:Purchase price$ 1,780,000Freight charges23,000Installation charges13,000Annual maintenance charge120,000Total$ 1,936,000The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2022 and 2023.In 2024, after the 2023 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company’s controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment.Required:Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2024.Ignoring income taxes, prepare any 2024 journal entry(s) related to the change in depreciation methods. Journal entry worksheetRecord the correcting entry for the equipment capitalization errordiscovered in 2024.Note: Enter debits before credits.Transaction1Record entryView transaction listGeneral JournalJournal entry worksheet< 1 2Note: Enter debits before credits.TransactionClear entryRecord entryRecord the entry related to the change in depreciation method.Required 1Ignoring income taxes, prepare any 2024 journal entry(s) related to the change in depreciation methods.Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.General JournalClear entryDebitCreditDebitView general journalRequired 2 >CreditView general journal>>

Introduction A method of accounting known as the double declining balance (DDB) amortization process requires depreciating some assets at a rate that is twice that of straight-line depreciation. As a result, depreciation increases during the first year of ownership and decreases thereafter. The accounting procedure known as depreciation turns the initial expenses of fixed assets, such as equipment, machinery, and other plant and equipment, into an expenditure. It describes how the value of fixed assets decreases as a result of use, the passage of time, or obsolescence. A journal is a book where all of a business's transactions are initially recorded. Journalising is the process of recording transactions into a journal. Each transaction has an impact on two accounts, one of which is debited and the other one is credited.Solution: 1) i) Double Declining Rate; Double Declining rate = (1 / useful life) x 2 = ( 1 / 8) x 2 = 0.25 or 25% Year Inaccurate Depreciation (Previously recorded) Appropriate Depreciation (Needs to be recorded) 2022 $484,000 $454,000 2023 $363,000 $340,500 Total $847,000 $794,500 Working Note: 1) Inaccurate Depreciation 2022 = $1,936,000 x 25% = $484,000 2) Inaccurate Depreciation 2023 = ($1,936,000 - $484,000) x 25% = $363,000 3) Appropriate Depreciation 2022 = ($1,936,000 - $120,000) x 25% = $454,000 4) Appropriate Depreciation 2023 = ($1,816,000 - $454,000) x 25% = $340,500Depreciation expense is $52,500 overestimated (847,000 - 794,500) Equipment is overestimated by $120,000 and maintenance costs are undervalued by that much. As a result ($120,000 - 52,500), the net income is overestimated by $67,500. Account Debit Credit Retained profits $67,500 Depreciation accumulated $52,500 Equipment $120,000 (Record entry for the capitalization error in the equipment) Solution: 2) Change in methods does not require entry. Depreciation expense for the year 2024; Cost of an asset after correction ( 1,936,000 - 120,000) $1,816,000 Current accumulated depreciation (454,000 + 340,500) ($794,500) Cost-based for 2024 $1,021,500 Assets' remaining service life 6 Years Cost of depreciation in 2024 ( 1,021,500 / 6) $170,250 Account Debit Credit Cost for depreciation $170,250 Depreciation accumulated $170,250 (Record depreciation for year)

Answered: Collins Corporation purchased office…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Purchase price	$ 1,780,000
Freight charges	23,000
Installation charges	13,000
Annual maintenance charge	120,000
Total	$ 1,936,000

Required:

Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2024.
Ignoring income taxes, prepare any 2024 journal entry(s) related to the change in depreciation methods.

Journal entry worksheet
Record the correcting entry for the equipment capitalization error
discovered in 2024.
Note: Enter debits before credits.
Transaction
1
Record entry
View transaction list
General Journal
Journal entry worksheet
< 1 2
Note: Enter debits before credits.
Transaction
Clear entry
Record entry
Record the entry related to the change in depreciation method.
Required 1
Ignoring income taxes, prepare any 2024 journal entry(s) related to the change in depreciation methods.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
General Journal
Clear entry
Debit
Credit
Debit
View general journal
Required 2 >
Credit
View general journal
>
>

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