Calculate the revised annual depreciation expenses for each asset in 2018 and compare them to what the expenses would be if the changes were not made.
Calculate the revised annual depreciation expenses for each asset in 2018 and compare them to what the expenses would be if the changes were not made.
Corporate Financial Accounting
14th Edition
ISBN:9781305653535
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter9: Long-term Assets: Fixed And Intangible
Section: Chapter Questions
Problem 9.4BE: Revision of depreciation Equipment with a cost of 180,000 has an estimated residual value of 14,400,...
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Transcribed Image Text:10.5 Effects of Changes in Estimates on Depreciation Expense
At the end of each year, Patty Chu, the chief accountant at Rex Lin Enterprises, a Singapore-based trading company, reviews long-term assets at the
end of each year to determine whether changes are called for in how these assets are depreciated. In December 2017, her attention focused on two
assets in particular:
Warehouse
Building
Date acquired Cost Accumulated depreciation end of 2017 Useful life Residual value
25 years
$200,000
$38,000
$225,000
40 years
1,600,000
1/1/13
1/1/12
$10,000
100,000
Patty is proposing the following changes:
For the warehouse: a decrease in the useful life to 20 years and a decrease in residual value to $6,000.
For the building: an increase in the useful life to 50 years and a decrease in the residual value to $55,000.
Before agreeing to the changes, Patty's bosses would like to know what the depreciation charges will be for each asset if the changes are adopted. All
assets are depreciated using the straight-line method.
Required
Calculate the revised annual depreciation expenses for each asset in 2018 and compare them to what the expenses would be if the changes were not
made.
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