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Social ScienceThe Canliss Milling Company purchased machinery on January 2, 2014, for $800,000. A five-year life was estimated and no residual value was anticipated. Canliss decided to use the straight-line depreciation method and recorded $160,000 in depreciation in 2014 and 2015. Early in 2016, the company changed its depreciation method to the sum-of-the-years’-digits (SYD) method. Required: 1. Briefly describe the way Canliss should report this accounting change in the 2015–2016 comparative financial statements. 2. Prepare any 2016 journal entry related to the change.
The Canliss Milling Company purchased machinery on January 2, 2014, for $800,000. A five-year life was estimated and no residual value was anticipated. Canliss decided to use the straight-line depreciation method and recorded $160,000 in depreciation in 2014 and 2015. Early in 2016, the company changed its depreciation method to the sum-of-the-years’-digits (SYD) method. Required: 1. Briefly describe the way Canliss should report this accounting change in the 2015–2016 comparative financial statements. 2. Prepare any 2016 journal entry related to the change.
Expert Answer
Requirement 1:
The accounting changes in comparative financial statements:
The depreciation changes are the result of the changes in the accounting principles. The changes in the depreciation methods reflect the following:
- Estimated future benefit from the asset.
- The pattern of receiving the benefits.
- The awareness of the company regarding such benefits.
Canliss Milling Company does not change its previous financial statement and has not revised; instead, they simply changed the method of depreciation early in 2018 by implementing the Straight line depreciation method.
The un-depreciated cost remaining at the time of the change would be depreciated by the straight-line method of depreciation over the remaining useful life.
The disclosure note should explain the changes in depreciation and effect of the change in the financial statement. In addition, the nature and justification to the change should be explained.
Requirement 2:
Calculate the cost to be depreciated over the remaining life of 3 years.
Working Notes:
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Accounting
Financial Accounting
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