Reference no: EM132354418

Question

During 2016 and 2017, 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 2018, 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 $12,100 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

2016 $ 1,100 $ 2,000 $ 900

2017 1,100 1,800 700

Total $ 2,200 $ 3,800 $ 1,600

Required:

1. Prepare the journal entry that Faulkner will record in 2018 related to the change.

2. Suppose instead that Faulkner previously used straight-line depreciation and changed to sum-of-the-years'- digits in 2018. Prepare the journal entry that Faulkner will record in 2018 related to the change.