Chapter 11, Problem 11.10P

1.

To determine

Depreciation:

Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation.

$\text{Depreciation cost = }\frac{\text{Cost of the asset-Salvage value}}{\text{Estimated useful life of the asset}}$

Factors of computing depreciation:

For determining the depreciation cost of any asset, three factors are taken into consideration for computing the depreciation, they are;

1. Cost of the depreciable fixed asset
2. Estimated useful life of the fixed asset
3. Salvage value at the end of its useful life

Straight-line method:

Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset.

$\text{Depreciation expense = }\frac{\text{Cost of the asset – Salvage value}}{\text{Estimated useful life of the asset}}$

Sum-of- the-years’ digits method:

Sum-of-the years’ digits method determines the depreciation expense by multiplying the depreciable base and declining fraction.

1.

To Identify: The type of change.

2.

To determine

To Prepare: The journal entry necessary as a direct result of the change as well as any adjusting entry for the year 2016 related to the respective situation.

3.

To determine

To Describe: Any other steps that should be taken to appropriately report the situation.