Prepare the method of depreciation for depreciable assets

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Question: During 2014 and 2015, 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 2016, 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 $15,100 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
   2014 $1,400 $2,545
$1,145
   2015 1,400 2,291
891

$2,800 $4,836
$2,036

Required: 1. Prepare the journal entry that Faulkner will record in 2016 related to the change. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Suppose instead that Faulkner previously used straight-line depreciation and changed to sum-of-the-years'- digits in 2016. Prepare the journal entry that Faulkner will record in 2016 related to the change.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Reference no: EM131884841

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