Bailand Company purchased a building for $210,000 that had an estimated residual value of $10,000 and an estimated service life of 10 years. Bailand purchased the building 4 years ago and has used straight-line depreciation. At the beginning of the fifth year (before it records depreciation expense for the year), the following independent situations occur:

1. Bailand estimates that the asset has 8 years' life remaining (for a total of 12 years).

2. Bailand changes to the sum-of-the-years'-digits method.

3. Bailand discovers that the estimated residual value has been ignored in the computation of depreciation expense.

Required:

For each of the independent situations, prepare all the hournal entries relating to the building for the fifth year. Ignore income taxes.

1. Journal entry would be as follows:

Date Debit $ Credit $

Yr5 End Depreciation expense Account Dr. $15,000

Accumulated depreciation Account $15,000

2. Journal entry would be as follows:

Date Debit $ Credit $

Yr5 End Depreciation expense Account Dr. $34,285.71

Accumulated depreciation Account $34,285.71

3. Journal entry would be as follows:

Debit $ Credit $

Yr5 End Depreciation expense Account Dr. $20,000

Accumulated depreciation Account $20,000

Yr5 End Accumulated depreciation Dr. $4,000

Retained earnings $4,000

Explanation:

1. According to the given data we would have to make the following calculations to prepare the journal entries relating to Bailand estimates that the asset has 8 years' life remaining (for a total of 12 years)

Cost of building $210,000

Less: Salvage $10,000

Depreciable cost $200,000

Divide: Life f building 10

Annual depreciation $ 20.000

Depreciation for 4 yrs $80,000

Remaining Book value at end of 4yrs $130,000

Less: Salvage $10,000

Remaining depreciable cost $120,000

Divide: Life of building 8

Annual depreciation (revised) $15,000

Therefore, journal entry would be as follows:

Date Debit $ Credit $

Yr5 End Depreciation expense Account Dr. $15,000

Accumulated depreciation Account $15,000

2. Bailand changes to the sum-of-the-years'-digits method.

Therefore, Remaining Book value at end of 4yrs $130,000

Less: Salvage $10,000

Depreciable cost$120,000

Sum of years digit for remaining 6yrs 21

(6+5+4+3+2+1)

Depreciation of 5th year $34,285.71

(120000/21*6)

Therefore, journal entry would be as follows:

Date Debit $ Credit $

Yr5 End Depreciation expense Account Dr. $34,285.71

Accumulated depreciation Account $34,285.71

3. Bailand discovers that the estimated residual value has been ignored in the computation of depreciation expense

Therefore, Depreciation to be charged for 4 yrs under SLM $80,000

Depreciation which hass been charged $84,000

(210000/10*4)

Depreciation overcharged $4,000

Annual depreciation under SLM for 5th year $20,000

Therefore, journal entry would be as follows:

Debit $ Credit $

Yr5 End Depreciation expense Account Dr. $20,000

Accumulated depreciation Account $20,000

Yr5 End Accumulated depreciation Dr. $4,000

Retained earnings $4,000