Bailand Company purchased a building for $210,000 that had an estimated residual value of $10,000 and an estimated service life of 10 years. Bailand purchased the building 4 years ago and has used straight-line depreciation. At the beginning of the fifth year (before it records depreciation expense for the year), the following independent situations occur:
1. Bailand estimates that the asset has 8 years’ life remaining (for a total of 12 years).
2. Bailand changes to the sum-of-the-years’-digits method.
3. Bailand discovers that the estimated residual value has been ignored in the computation of depreciation expense.
Required:
For each of the independent situations, prepare all the hournal entries relating to the building for the fifth year. Ignore income taxes.

1. According to the given data we would have to make the following calculations to prepare the journal entries relating to Bailand estimates that the asset has 8 years’ life remaining (for a total of 12 years)

Cost of building $210,000

Less: Salvage $10,000

Depreciable cost $200,000

Divide: Life f building 10

Annual depreciation $ 20.000

Depreciation for 4 yrs $80,000

Remaining Book value at end of 4yrs $130,000

Less: Salvage $10,000

Remaining depreciable cost $120,000

Divide: Life of building 8

Annual depreciation(revised) $15,000

Therefore, journal entry would be as follows:

Date Debit $ Credit $

Yr5 End Depreciation expense Account Dr. $15,000

Accumulated depreciation Account $15,000

2. Bailand changes to the sum-of-the-years’-digits method.

Therefore, Remaining Book value at end of 4yrs $130,000

Less: Salvage $10,000

Depreciable cost$120,000

Sum of years digit for remaining 6yrs 21

(6+5+4+3+2+1)

Depreciation of 5th year $34,285.71

(120000/21*6)

Therefore, journal entry would be as follows:

Date Debit $ Credit $

Yr5 End Depreciation expense Account Dr. $34,285.71

Accumulated depreciation Account $34,285.71

3. Bailand discovers that the estimated residual value has been ignored in the computation of depreciation expense

Therefore, Depreciation to be charged for 4 yrs under SLM $80,000

Depreciation which hass been charged $84,000

(210000/10*4)

Depreciation overcharged $4,000

Annual depreciation under SLM for 5th year $20,000

Therefore, journal entry would be as follows:

Debit $ Credit $

Yr5 End Depreciation expense Account Dr. $20,000

Accumulated depreciation Account $20,000

Yr5 End Accumulated depreciation Dr. $4,000

Retained earnings $4,000