Question

Exercise 20-11 (Algo) Change in depreciation methods [LO20-3] The

Canliss Milling Company purchased machinery on January 2. 2019, for $830,000.
A five-year life was estimate value was anticipated. Canliss decided to
use the straight-line depreciation method and recorded $166.000
in dee and 2020. Early in 2021, the company changed its depreciation
method to the sum-of-the-years'-digits (SYD) meth Required: 1. Will
Canliss apply the SYD method retrospectively or apply the method
prospectively? 2. Prepare any 2021 journal entry related to the change.
(If no entry is required for a transaction/event, sele required" in the
first account field.) Journal entry worksheet Record the adjusting entry
for depreciation in 2021 .

Answer 1

Canliss Milling Company will apply the sum-of-the-years'-digits (SYD) method prospectively from 2021 after changing from the straight-line method. The depreciation expense for 2021 will be calculated based on the remaining book value and the applicable fraction of the SYD method.

Step-by-step explanation:

The question pertains to a change in the depreciation method by Canliss Milling Company. The company switched from the straight-line method to the sum-of-the-years'-digits (SYD) method in 2021. According to accounting principles, changes in depreciation methods are treated prospectively, not retrospectively. Therefore, the SYD method will be applied to the remaining useful life of the asset starting from 2021.

The calculation for the journal entry for 2021, after changing to the SYD method, will depend on the remaining book value of the asset and the remaining useful life. As Canliss has already depreciated the asset for two years using the straight-line method, there are three years left in the asset's useful life. To calculate depreciation expense for 2021 using the SYD method, the sum of the digits for the five-year life is calculated as (5+4+3+2+1)=15. Since the third year of use is 2021, the fraction applied will be 3/15.

The book value of the machinery at the beginning of 2021, before depreciation, is the original cost of $830,000 minus the accumulated depreciation of $166,000 for each of the two years, which totals $332,000. This leaves a book value of $498,000. Applying the SYD fraction for the third year, the depreciation expense for 2021 would be ($498,000 * (3/15)).