Venice Company purchased a gondola for $440,000 (no residual value)at the beginning of 2013.The gondola was being depreciated over a 10-year life using the sum-of-the-years'-digits method.At the beginning of 2016,it was decided to change to straight-line.Ignoring taxes,the 2016 adjusting entry will include a debit to depreciation expense of:

Question

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To calculate the annual depreciation expense under the sum-of-the-years'-digits method, we first need to determine the denominator, which is the sum of the digits of the asset's useful life. In this case, the sum of the digits of the 10-year life is:

10 + 9 + 8 + ... + 2 + 1 = 55

In Year 1, the depreciation expense would be:

(10/55) x $440,000 = $80,000

In Year 2, the depreciation expense would be:

(9/55) x $440,000 = $71,636

And so on, until we reach Year 4, when the depreciation expense would be:

(7/55) x $440,000 = $56,727

At the beginning of Year 4, the book value of the gondola would be:

$440,000 - $80,000 - $71,636 - $56,727 = $231,637

If we switch to straight-line depreciation at the beginning of Year 4, we would need to calculate the annual depreciation expense as:

($440,000 - $0) / 10 = $44,000

Under the straight-line method, the annual depreciation expense stays the same each year. Therefore, the adjusting entry at the beginning of 2016 would need to account for the difference between the depreciation expense calculated under the sum-of-the-years'-digits method and the depreciation expense calculated under the straight-line method.

In 2016, the gondola has already been owned for 4 years. Therefore, the total depreciation expense that has been recorded so far is:

$80,000 + $71,636 + $56,727 = $208,363

Under the straight-line method, the depreciation expense for the first 4 years would have been:

4 x $44,000 = $176,000

The difference between these two amounts is:

$208,363 - $176,000 = $32,363

Therefore, the adjusting entry at the beginning of 2016 would need to include a debit to depreciation expense for $32,363.

Venice Company Purchased a Gondola for $440,000 (No Residual Value)at