Answered: Headland Company is in the process of…

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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Question

Headland Company is in the process of preparing its financial statements for 2020. Assume that no entries for depreciation have been recorded in 2020. The following information related to depreciation of fixed assets is provided to you.

1.		Headland purchased equipment on January 2, 2017, for $86,700. At that time, the equipment had an estimated useful life of 10 years with a $4,700 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2020, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $2,800 salvage value.
2.		During 2020, Headland changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $310,000. It had a useful life of 10 years and a salvage value of $31,000. The following computations present depreciation on both bases for 2018 and 2019.

	2019	2018
Straight-line	$27,900	$27,900
Declining-balance	49,600	62,000

Headland purchased a machine on July 1, 2018, at a cost of $130,000. The machine has a salvage value of $16,000 and a useful life of 8 years. Headland’s bookkeeper recorded straight-line depreciation in 2018 and 2019 but failed to consider the salvage value.

(a)

Prepare the journal entries to record depreciation expense for 2020 and correct any errors made to date related to the information provided. (Ignore taxes.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
1.

2.

3.

	(To record current year depreciation.)


	(To correct prior year depreciation.)

(b)

Show comparative net income for 2019 and 2020. Income before depreciation expense was $330,000 in 2020, and was $280,000 in 2019. (Ignore taxes.)

HEADLAND COMPANY Comparative Income Statements For the Years 2020 and 2019
	2020	2019
Income before depreciation expense	$	$
Depreciation expense
Net income	$	$

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