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.)