During 2019 and 2020, Faulkner Manufacturing used the sum-of-the-years'-digits (SYD) method of depreciation for its depreciable assets, for both financial reporting and tax purposes. At the beginning of 2021, Faulkner decided to change to the straight-line method for both financial reporting and tax purposes. A tax rate of 25% is in effect for all years. For an asset that cost $21,000 with an estimated residual value of $1,000 and an estimated useful life of 10 years, the depreciation under different methods is as follows: Year 2019 2020 Straight Line $2,000 2,000 $4,000 SYD $3,636 3,273 $ 6,909 Difference $1,636 1,273 $ 2,909 Required 1. Prepare the journal entry that Faulkner will record in 2021 related to the change. 2. Suppose instead that Faulkner previously used straight-line depreciation and changed to sum-of-the-years'- digits in 2021. Prepare the journal entry that Faulkner will record in 2021 related to the change.

During 2019 and 2020, Faulkner Manufacturing used the sum-of-the-years'-digits (SYD) method of depreciation for its depreciable assets, for both financial reporting and tax purposes. At the beginning of 2021, Faulkner decided to change to the straight-line method for both financial reporting and tax purposes. A tax rate of 25% is in effect for all years. For an asset that cost $21,000 with an estimated residual value of $1,000 and an estimated useful life of 10 years, the depreciation under different methods is as follows: Year 2019 2020 Straight Line $2,000 2,000 $4,000 SYD $3,636 3,273 $ 6,909 Difference $1,636 1,273 $ 2,909 Required 1. Prepare the journal entry that Faulkner will record in 2021 related to the change. 2. Suppose instead that Faulkner previously used straight-line depreciation and changed to sum-of-the-years'- digits in 2021. Prepare the journal entry that Faulkner will record in 2021 related to the change.

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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