Problem
During 2011 and 2012, Faulkner Manufacturing used the sum-of-the-years%u2019-digits (SYD) method of depreciation for its depreciable assets, for both financial reporting and tax purposes. At the beginning of 2013, 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:
|
Year
|
Straight Line
|
SYD
|
Difference
|
|
2011
|
$2,000
|
|
$3,636
|
|
$1,636
|
|
|
2012
|
2,000
|
|
3,273
|
|
1,273
|
|
|
$4,000
|
|
$6,909
|
|
$2,909
|
|
Q1. Prepare the journal entry that Faulkner will record in 2013 related to the change.
Q2. Suppose instead that Faulkner previously used straight-line depreciation and changed to sum-of-the-years%u2019- digits in 2013. Prepare the journal entry that Faulkner will record in 2013 related to the change.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.