GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
9th Edition
ISBN: 9781260089042
Author: J. David Spiceland
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 20, Problem 20.6P
Change in principle; change in
• LO20–3
During 2016 and 2017, Faulkner Manufacturing used the sum-of-the-years’-digits (SYD) method of depreciation for its depreciable assets, for both financial reporting and tax purposes. At the beginning of 2018, Faulkner decided to change to the straight-line method for both financial reporting and tax purposes. A tax rate of 40% is in effect for all years.
For an asset that cost $21,000 with an estimated residual value of $1,000 and an estimated useful life of 10 years, the depreciation under different methods is as follows:
Required:
1. Describe the way Faulkner should account for the change described. Include in your answer any
2. Suppose instead that Faulkner previously used straight-line depreciation and changed to sum-of-the-years’-digits in 2018. Describe the way Faulkner should account for the change. Include in your answer any journal entry Faulkner will record in 2018 related to the change and any required note disclosures.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Exercise 11-24 (Algo) Change in principle; change in depreciation methods [LO11-2, 11-6]
Alteran Corporation purchased office equipment for $2.2 million at the beginning of 2022. The equipment is being depreciated over a
10-year life using the double-declining-balance method. The residual value is expected to be $700,000. At the beginning of 2024 (two
years later), Alteran decided to change to the straight-line depreciation method for this equipment.
Required:
Prepare the journal entry to record depreciation for the year ended December 31, 2024.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round
intermediate calculations. Enter your answers in whole dollars.
View transaction list View journal entry worksheet
Event
1
No
1
General Journal
Depreciation expense
Accumulated depreciation
Debit
Credit
Tecnal
Exercise 16-2 (Algo) Determine taxable income; determine prior year deferred tax amount;
financial statement effects [LO16-2]
On January 1, 2021, Ameen Company purchased major pieces of manufacturing equipment for a total of $54 million. Ameen
uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31,
2023, the book value of the equipment was $48 million and its tax basis was $38 million. At December 31, 2024, the book
value of the equipment was $46 million and its tax basis was $31 million. There were no other temporary differences and no
permanent differences. Pretax accounting income for 2024 was $35 million.
Required:
1. Prepare the appropriate journal entry to record Ameen's 2024 income taxes. Assume an income tax rate of 25%,
2. What is Ameen's 2024 net income?
Depreciation as a Tax Shield
The term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. Assume that Supreme Company is considering the purchase of an asset as of January 1, 2017. The cost of the asset with a five-year life and zero residual value is $123,300. The company will use the straight-line method of depreciation.
Supreme's income for tax purposes before recording depreciation on the asset will be $46,900 per year for the next five years. The corporation is currently in the 30% tax bracket.
Required:
Calculate the amount of income tax that Supreme must pay each year if the asset is and is not purchased.
1. Amount of taxes paid if asset is not purchased is:
$fill in the blank 1
2a. Amount of depreciation if asset is purchased is:
$fill in the blank 2
b. Amount of taxes paid if asset is purchased is:
$fill in the blank 3
3. What is the amount of the depreciation tax shield?
$fill in the blank 4
Chapter 20 Solutions
GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
Ch. 20 - Prob. 20.1QCh. 20 - There are three basic accounting approaches to...Ch. 20 - Prob. 20.3QCh. 20 - Lynch Corporation changes from the...Ch. 20 - Sugarbaker Designs Inc. changed from the FIFO...Ch. 20 - Most changes in accounting principles are recorded...Ch. 20 - Southeast Steel, Inc., changed from the FIFO...Ch. 20 - Prob. 20.8QCh. 20 - Its not easy sometimes to distinguish between a...Ch. 20 - For financial reporting, a reporting entity can be...
Ch. 20 - Prob. 20.11QCh. 20 - Describe the process of correcting an error when...Ch. 20 - Prob. 20.13QCh. 20 - If it is discovered that an extraordinary repair...Ch. 20 - Prob. 20.15QCh. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in inventory methods; average cost method...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in depreciation methods LO203 Irwin, Inc.,...Ch. 20 - Prob. 20.5BECh. 20 - Book royalties LO204 Three programmers at Feenix...Ch. 20 - Warranty expense LO204 In 2017, Quapau Products...Ch. 20 - Change in estimate; useful life of patent LO204...Ch. 20 - Prob. 20.9BECh. 20 - Error correction LO206 In 2018, internal auditors...Ch. 20 - Prob. 20.11BECh. 20 - Error correction LO206 In 2018, the internal...Ch. 20 - Change in principle; change in inventory methods ...Ch. 20 - Change in principle; change in inventory methods ...Ch. 20 - Change from the treasury stock method to retired...Ch. 20 - Change in principle; change to the equity method ...Ch. 20 - Prob. 20.5ECh. 20 - FASB codification research LO202 Access the FASB...Ch. 20 - Change in principle; change in inventory cost...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in depreciation methods LO203 For...Ch. 20 - Change in depreciation methods LO203 The Canliss...Ch. 20 - Book royalties LO204 Dreighton Engineering Group...Ch. 20 - Loss contingency LO204 The Commonwealth of...Ch. 20 - Warranty expense LO204 Woodmier Lawn Products...Ch. 20 - Prob. 20.15ECh. 20 - Accounting change LO204 The Peridot Company...Ch. 20 - Change in estimate; useful life and residual value...Ch. 20 - Classifying accounting changes LO201 through...Ch. 20 - Error correction; inventory error LO206 During...Ch. 20 - Error corrections; investment LO206 Required: 1....Ch. 20 - Prob. 20.21ECh. 20 - Prob. 20.22ECh. 20 - Prob. 20.23ECh. 20 - Inventory errors LO206 Indicate with the...Ch. 20 - Classifying accounting changes and errors LO201...Ch. 20 - Change in inventory costing methods; comparative...Ch. 20 - P 20-2 Change in principle; change in method of...Ch. 20 - Change in inventory costing methods; comparative...Ch. 20 - Change in inventory methods LO202 The Rockwell...Ch. 20 - Change in inventory methods LO202 Fantasy...Ch. 20 - Change in principle; change in depreciation...Ch. 20 - Depletion; change in estimate LO204 In 2018, the...Ch. 20 - Accounting changes; six situations LO201, LO203,...Ch. 20 - Prob. 20.9PCh. 20 - Inventory errors LO206 You have been hired as the...Ch. 20 - Error correction; change in depreciation method ...Ch. 20 - Accounting changes and error correction; seven...Ch. 20 - Prob. 20.13PCh. 20 - Prob. 20.14PCh. 20 - Prob. 20.15PCh. 20 - Prob. 20.16PCh. 20 - Prob. 20.17PCh. 20 - Integrating Case 201 Change to dollar-value LIFO ...Ch. 20 - Prob. 20.2BYPCh. 20 - Prob. 20.3BYPCh. 20 - Analysis Case 204 Change in inventory methods;...Ch. 20 - Prob. 20.5BYPCh. 20 - Prob. 20.6BYPCh. 20 - Analysis Case 208 Various changes LO201 through...Ch. 20 - Analysis Case 209 Various changes LO201 through...Ch. 20 - Prob. 20.10BYPCh. 20 - Prob. 20.11BYPCh. 20 - Prob. 20.12BYPCh. 20 - Prob. 1CCTC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Depreciation as a Tax Shield The term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. Assume that Supreme Company is considering the purchase of an asset as of January 1, 2017. The cost of the asset with a five-year life and zero residual value is $143,800. The company will use the straight-line method of depreciation. Supreme's income for tax purposes before recording depreciation on the asset will be $48,400 per year for the next five years. The corporation is currently in the 25% tax bracket. Required: Calculate the amount of income tax that Supreme must pay each year if the asset is and is not purchased. 1. Amount of taxes paid if asset is not purchased is: $ 2a. Amount of depreciation if asset is purchased is: $ b. Amount of taxes paid if asset is purchased is: $ 3. What is the amount of the depreciation tax shield? $arrow_forwardurrent Attempt in Progress Oriole Inc's only temporary difference at the beginning and end of 2024 is caused by a $3.15 million deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2025 and 2026. The related deferred tax liability at the beginning of the year is $945,000. In the third quarter of 2024, a new tax rate of 20% is enacted into law and is scheduled to become effective for 2026. Taxable income for 2024 is $5,250,000, and taxable income is expected in all future years. (a) Your answer is incorrect. Determine the amount reported as a deferred tax liability at the end of 2024. Deferred tax liability $ eTextbook and Media eTextbook 1 Assistance Used SUPPORTarrow_forwardQuestion 6 Happy Mart Sdn Bhd acquired an equipment in Year 2016 for RM100,000 and depreciates it on a straight-line basis over its expected useful life of five years. The equipment has no residual value. For tax purposes, the equipment is depreciated at 25% per annum on a straight-line basis. Tax losses may be carried back against taxable profit of the previous five years. In year 2015, the entity's taxable profit was RM25,000. The tax rate is 20%. Required:- Assuming nil profits/losses after depreciation in years 2016 to 2020, show the current and deferred tax impact in years 2016 to 2020 of the acquisition of the equipment. In this question the proformas are given to you to help you to setting out your answer. Please use a separate sheet for your workings. 2018 Year Taxable income Depreciation for tax purposes Taxable profit (tax loss) Current tax expense (income) 2016 2017 2019 2020 Year 2016 2017 2018 2019 2020 Carrying amount Tax base Taxable temporary difference Opening deferred…arrow_forward
- Depreciation as a Tax Shield The term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. Assume that Supreme Company is considering the purchase of an asset as of January 1, 2017. The cost of the asset with a five-year life and zero residual value is $100,000. The company will use the straight-line method of depreciation. Supreme's income for tax purposes before recording depreciation on the asset will be $50,000 per year for the next five years. The corporation is currently in the 35% tax bracket.arrow_forwardBrlef Exercise 22-06 In 2020, Kingbird Corporation discovered that equipment purchased on January 1, 2018, for $57,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Kingbird uses straight-line depreciation. Prepare Kingbird's 2020 journal entry to correct the error. (CrediIt account titles are automatically Indented when amount Is entered. Do not Indent manually. If no entry Is required, select "No Entry" for the account titles and enter0 for the amounts.) Account Titles and Explanation Debit Creditarrow_forwardP10-4 Calculating depreciation by three methods and the advantage of accelerated depreciation for tax purposes [20–30 min] On 3 January 2017, Joe Campbell Photography paid $224 000 for photo equipment. In addition to the purchase price, Campbell paid $700 freight charges, $100 insurance for the equipment while in transit, $12 100 customs duty, and $3100 for specialised training to be able to use the equipment. Campbell estimates that the equipment will remain in service for five years and have a residual value of $20000. The equipment should produce 50000 photos the first year, with annual production decreasing by 5000 photos during each of the next four years (that is, 45 000 photos in year 2, 40000 in year 3 and so on-a total of 200 000 photos). In trying to decide which depreciation method to use, Campbell has requested a depreciation schedule for each of three depreciation methods (straight line, units of production and reducing balance). Requirements 1 For each depreciation…arrow_forward
- 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…arrow_forwardExercise 16-5 (Algo) Taxable income given; calculate deferred tax liability from book-tax difference; 100% depreciation in the year of purchase; financial statement effects [LO16-2] Ayres Services acquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows: 2024 ($ in millions) 2025 2026 2027 Pretax accounting income $ 370 $ 390 Depreciation on the income statement 20 20 $ 405 20 Depreciation on the tax return (80) (0) (0) $ 440 20 (8) $ 310 $ 410 $ 425 $ 460 Taxable income Required: For December 31 of each year, determine (a) the cumulative temporary book-tex difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account.…arrow_forwardProblem 11-11 (Algo) Error correction; change in depreciation method [LO11-2, 11-6, 11-7] Collins Corporation purchased office equipment at the beginning of 2022 and capitalized a cost of $2,130,000. This cost figure included the following expenditures: Purchase price Freight charges Installation charges Annual maintenance charge Total The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2022 and 2023. In 2024, after the 2023 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company's controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment. Required: 1. Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2024. 2.…arrow_forward
- Problem 4 Mustang Company changed from straight line depreciation to double declining balance method at the beginning of 2021. The plant asset originally cost P1,500,000 in 2016 using the straight-line depreciation. Periodic depreciation using the straight-line method is P60,000. What amount of depreciation should Mustang recognize for the year 2021?arrow_forward5 points What amount should be recorded as depreciation for 2021? * On January 1, 2019, Brazilia Company purchased for P4,800,000 a machine with a useful life of ten years and residual value of P200,000. The machine was depreciated by the double declining balance method and the carrying amount of the machine was P3,072,000 on December 31, 2020. The entity changed to the straight line method on January 1, 2021. The residual value did not change. 287200 384000 460000 359000arrow_forwardS10-6 Calculating depreciation by three methods–second year At the beginning of 2017, JetQuick Airlines purchased a used Boeing jet at a cost of $46 million. JetQuick expects the plane to remain useful for eight years (5 million kilometres) and to have a residual value of $6 million. JetQuick expects the plane to be flown for 1.3 million kilometres the first year and 1 million kilometres the second year. Requirements 1 Calculate second-year (2018) depreciation on the plane using the following methods: a straight line b units of production c reducing balance (use 2 x the SL rate). 2 Calculate the balance in Accumulated depreciation at the end of the second year using the straight-line method of depreciation.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Property, Plant and Equipment (PP&E) - Introduction to PPE; Author: Gleim Accounting;https://www.youtube.com/watch?v=e_Hx-e-h9M4;License: Standard Youtube License