Below are several cases related to the depreciation of plant and equipment. In all cases the company has a December 31 year-end.
Case A: A machine was acquired on January 1, 2012 for $4,000,000. At that time it was estimated the machine would last eight years and have a residual value of $500,000. The company uses the straight-line method to record depreciation. Due to reduced levels of activity during 2014, management revised the estimate of useful life to 10 more years (the machine was to be operational until December 31, 2023, 12 years in total) and its residual value would be $300,000. Prepare the journal entry to record depreciation for 2012 and 2014.
Case B: Same as Case A except the company uses the declining balance method. The rate used will be 2/8 years, or 25% for the first two years and then 2/10 years or 20% thereafter. Prepare the journal entry to record depreciation for 2012 and 2014.
Case C: A building costing $6,000,000 was purchased on January 1, 2011. Based on management’s best estimates, the useful life of the building was estimated to be 40 years and of no residual value at that time. During 2017 it was discovered that the local government had plans to build a freeway where the building stands. This project would require significant engineering and regulatory approval, so the site would be expropriated on January 1, 2023. The government agreed to pay $1,000,000 compensation for the building. Prepare the journal entry to record depreciation for 2011 and 2017. The company uses the straight-line method to determine depreciation expense.
Case D: Same as Case C except the company uses the declining balance method. The rate will be 2/40 years or 5% until 2017 and 2/6 or 33>/J% thereafter. Prepare the journal entry to record depreciation for 2011 and 2017.
Case E: A large lathe was bought on January 1, 2013 for $7,000,000. It was expected to last for 12 years and have a residual value of $70,000. The company’s policy for depreciating equipment is the straight-line method. During 2018 the remaining useful life of the lathe was revised to be four more years (for nine years in total). Management also felt that all equipment should now be depreciated using the declining balance method at a 25% rate. Prepare the entry to record depreciation for 2013 and 2018.
Required:
For each case, prepare the journal entries requested.