Reference no: EM132884979
During 2019 and 2020, Faulkner Manufacturing used the sum-of-the-years'-digits (SYD) method of depreciation for its depreciable assets, for both financial reporting and tax purposes. At the beginning of 2021, Faulkner decided to change to the straight-line method for both financial reporting and tax purposes. A tax rate of 25% is in effect for all years.
For an asset that cost $18,100 with an estimated residual value of $1,100 and an estimated useful life of 10 years, the depreciation under different methods is as follows:
Year Straight Line SYD Difference
2019 $1,700 $3,091 $1,391
2020 1,700 2,782 1,082
$3,400 $5,873 $2,473
Required:
Problem 1. Prepare the journal entry that Faulkner will record in 2021 related to the change.
Problem 2. Suppose instead that Faulkner previously used straight-line depreciation and changed to sum-of-the-years'- digits in 2021. Prepare the journal entry that Faulkner will record in 2021 related to the change.
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