To solve this problem, we need to follow these steps to prepare the journal entry for 2024 related to the change to the straight-line method of depreciation.
Step-by-step Solution:
1. Calculate the initial cost and residual value of the equipment:
- Purchase Price: \[tex]$2,704,000
- Residual Value: \$[/tex]196,000
- Useful Life: 6 years
2. Determine the annual depreciation amounts using the declining-balance method:
- According to the information given, the depreciation for the years 2021 to 2023 under the declining-balance method are:
- 2021: \[tex]$901,000
- 2022: \$[/tex]601,000
- 2023: \[tex]$401,000
3. Calculate the accumulated depreciation by the end of 2023:
\[
\text{Accumulated Depreciation (2021 to 2023)} = 901,000 + 601,000 + 401,000 = \$[/tex]1,903,000
\]
4. Find the book value of the equipment at the beginning of 2024:
[tex]\[
\text{Book Value (2024)} = \text{Purchase Price} - \text{Accumulated Depreciation (2021 to 2023)} = 2,704,000 - 1,903,000 = \$801,000
\][/tex]
5. Determine the remaining useful life of the equipment starting 2024:
- Since 3 years have already passed (2021 to 2023), the remaining useful life is:
[tex]\[
\text{Remaining Useful Life} = 6 - 3 = 3 \text{ years}
\][/tex]
6. Compute the straight-line depreciation expense from 2024 onwards:
[tex]\[
\text{Depreciation Expense (2024 onwards)} = \frac{\text{Book Value (2024)} - \text{Residual Value}}{\text{Remaining Useful Life}} = \frac{801,000 - 196,000}{3} = \$201,666.67
\][/tex]
Rounding to the nearest dollar:
[tex]\[
\text{Depreciation Expense (2024)} = \$201,667
\][/tex]
7. Prepare the journal entry for 2024:
- We need to adjust the depreciation expense for 2024 according to the straight-line method calculation.
Journal Entry:
[tex]\[
\begin{x}\begin{array}{l}
\text{Debit: Depreciation Expense} \quad \$201,667 \\
\text{Credit: Accumulated Depreciation} \quad \$201,667 \\
\end{array}\end{x}
\][/tex]
Summary:
Thus, the journal entry to record the depreciation expense for 2024 using the straight-line method is:
[tex]\[
\begin{array}{ll}
\text{Debit: Depreciation Expense} & \$201,667 \\
\text{Credit: Accumulated Depreciation} & \$201,667 \\
\end{array}
\][/tex]
This entry reflects the change in the depreciation method from declining-balance to straight-line and records the depreciation expense for the year 2024 based on the revised method.
