P 11-11 Error correction; change in depreciation method
Collins Corporation purchased office equipment at the beginning of 2009 and capitalized a cost of $2,000,000. This cost figure included the following expenditures:
Purchase price 41,850,000
Freight charges 30,000
Installation charges 20,000
Annual maintenance charge 100,000
Total $2,000,000
The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2009 and 2010.
In 2011, after the 2010 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company's controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment.
Required:
1. Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2011.
2. Ignoring income taxes, prepare any 2011 journal entry(s) related to the change in depreciation methods.
