Holtzman Company is in the process of preparing its financial statements for 2012. Assume that no entries

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Holtzman Company is in the process of preparing its financial statements for 2012. Assume that no entries for depreciation have been recorded in 2012. The following information related to depreciation of fixed assets is provided to you.

  1. Holtzman purchased equipment on January 2, 2009, 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, 2012, 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 2012, 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 2010 and 2011.

                

  3. Holtzman purchased a machine on July 1, 2010, 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 2010 and 2011 but failed to consider the salvage value.

Instructions
  (a) Prepare the journal entries to record depreciation expense for 2012 and correct any errors made to date related to the information provided.
  (b) Show comparative net income for 2011 and 2012. Income before depreciation expense was $300,000 in 2012, and was $310,000 in 2011. (Ignore taxes.)

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Related Book For  book-img-for-question

Intermediate Accounting

ISBN: 978-0470587287

14th Edition

Authors: kieso, weygandt and warfield.

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