Changes and Corrections of Depreciation
Response to the following problem:
At the beginning of 2011, the controller of Holden Company asked you to prepare correcting entries for the following three situations:
1. Machine X was purchased for $100,000 on January 1, 2006. Straight-line depreciation has been recorded for five years, and the Accumulated Depreciation account has a balance of $45,000. The estimated residual value remains at $10,000, but the service life is now estimated to be one year longer than originally estimated.
2. Machine Y was purchased for $40,000 on January 1, 2009. It had an estimated residual value of $4,000 and an estimated service life of eight years. It has been depreciated under the sum-of-the-years'-digits method for two years. Now, the company has decided to change to the straight-line method.
3. Machine Z was purchased for $80,000 on January 1, 2010. Double-declining-balance depreciation has been recorded for one year. The estimated residual value is $8,000 and the estimated service life is five years. The computation of the depreciation erroneously included the estimated residual value.
Required:
Prepare any necessary correcting journal entries for each situation. Also prepare the journal entry for each situation to record the depreciation for 2011. (Ignore income taxes.)