Question

Prior to 2018, Trapper John Inc. used sum-of-the-years'-digits depreciation on its store equipment. Beginning in 2018, Trapper John decided to use straight-line depreciation for these assets. The equipment cost $3 million when it was purchased at the beginning of 2016, had an estimated useful life of five years and no estimated residual value. To account for the change in 2018, Trapper John:

Answer 1

Answer:

To account for the change in 2018, Trapper John would report depreciation expense of $400,000 in its 2018 income statement.

Explanation:

A change in depreciation methods is considered to be a change in accounting estimate that is achieved by a change in accounting principle and handled prospectively.

The computation is as follows:

Book value at 1/1/2018 = $3,000,000 [(5/15 x $3,000,000) + (4/15 x $3,000,000)

= $1,200,000.

New depreciation= $1,200,000/3= $400,000 per year for 2016-2018.

Answer 2

To account for the change in 2018, Trapper John: Would report depreciation expense of $400,000 in its 2018 income statement.

First step is to calculate the book value

2018 Book value =$3,000,000- [(5/15 × $3,000,000) + (4/15 × $3,000,000)]

2018 Book value=$3,000,000-($1,000,000+$800,000)

2018 Book value=$3,000,000-$1,800,000

2018 Book value=$1,200,000

Second step is to calculate the new depreciation expense for year 2018- 2020

New depreciation expense= $1,200,000 ÷ 3

New depreciation expense= $400,000 per year

Inconclusion to account for the change in 2018, Trapper John: Would report depreciation expense of $400,000 in its 2018 income statement.

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