Question 1 - Wardell Company purchased a minicomputer on January 1, 2009, at a cost of $40,000. The computer was depreciated using the stright-line method over an estimated five-year life with an estimated residual value of $4,000. On January 1, 2011, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $900.00
1. Prepare the appropriate adjusting entry for depreciation in 2011 to reflect the revised estimate.
Question 2 - For financial reporting, Clinton Poultry Farms has used the declining-balance metod of depreciation for conveyor equipment aquired at the beginning of 2008 for $2,560,000. Its useful life was estimated to be six years, with a $160,000 residual value. At the beginning of 2011, Clinton decides to change to the straight-line method. The effect of this change on depreciation for each year is a follows:
|
Year
|
Straight Line
|
Declining Balance
|
Difference
|
|
2008
|
$400
|
$853
|
$453
|
|
2009
|
400
|
569
|
$169
|
|
2010
|
400
|
379
|
($21)
|
|
$1,200
|
$1,801
|
$601
|
Required:
1. Briefly describe the way Clinton should report this accounting change in the 2010-2011 comparative financial statements.
2. Prepare any 2011 journal entry related to the change.