Holtzman Company is in the process of preparing its financial statements for 2017. Assume that no entries for depreciation have been recorded in 2017. The following information related to depreciation of fixed assets is provided to you.

1. Holtzman purchased equipment on January 2, 2014 for $85,000. At that time, the equipment had an estimated useful life of 10 years with a $5,000 residual value. The equipment is depreciated on a straight-line basis. On January 2, 2017, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $3,000 residual value.

2. During 2017, Holtzman changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $300,000. It had a useful life of 10 years and a residual value of $30,000. The following calculations present depreciation on both bases for 2015 and 2016.

________________ Straight-Line_______ Double - Declining Balance

.............2015 ......... $27,000 .................. $60,000

.............2016 ......... $27,000 .................... 48,000

3. Holtzman purchased a machine on July 1, 2015 at a cost of $120,000. The machine has a residual value of $16,000 and a useful life of eight years. Holtzman's bookkeeper recorded straight-line depreciation in 2015 and 2016 but failed to consider the residual value.

Instructions:

a) Prepare the journal entries to record depreciation expense for 2017 and correct any errors made to date related to the information provided. (Ignore income tax considerations.)

b) Show comparative net income for 2016 and 2017. Income before depreciation expense was $300,000 in 2017 and

$310,000 in 2016. (Ignore income tax considerations.)