Change in Estimate and Error Correction Holtzman Company is in the process of preparing its financial statements
Question:
Change in Estimate and Error Correction Holtzman Company is in the process of preparing its financial statements for 2010. Assume that no entries for depreciation have been recorded in 2010. The following information related to depreciation of fixed assets is provided to you:
1. Holtzman purchased equipment on January 2, 2007, for $85,000. At that time, the equipment had an estimated useful life of 10 years with a $5,000 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2010, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $3,000 salvage value.
2. During 2010 Holtzman changed from the double-declining balance method for its building to the straight-line method. The building originally cost $300,000. It had a useful life of 10 years and a salvage value of $30,000. The following computations present depreciation on both bases for 2008 and 2009.
2009 2008
Straight-line $27,000 $27,000
Declining-balance 48,000 60,000
3. Holtzman purchased a machine on July 1, 2008, at a cost of $120,000. The machine has a salvage value of $16,000 and a useful life of 8 years. Holtzman’s bookkeeper recorded straight-line depreciation in 2008 and 2009 but failed to consider the salvage value.
(a) Prepare the journal entries to record depreciation expense for 2010 and correct any errors made to date related to the information provided.
(b) Show comparative net income for 2009 and 2010. Income before depreciation expense was $300,000 in 2010, and was $310,000 in 2009. Ignore taxes.
DepreciationDepreciation is an important concept in accounting. By definition, depreciation is the wear and tear in the value of a noncurrent asset over its useful life. In simple words, depreciation is the cost of operating a noncurrent asset producing... Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Step by Step Answer:
Intermediate Accounting
ISBN: 978-0470423684
13th Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, And Terry D. Warfield