A-plus writer

The Diamond Glitter Company is in the process of preparing its financial statements for 2012. Assume that no entries for depreciation have been recorded in 2012. The following information related to depreciation of fixed assets is provided to you.

1. The company purchased equipment on January 2, 2009, for $165,000. At that time, the equipment had an estimated useful life of 7 years with a $25,000 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2012, as a result of additional information, the company determined that the equipment has a remaining useful life of 3 years with a $15,000 salvage value.

2. During 2012, the company changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $625,000. It had a useful life of 10 years and a salvage value of $50,000. The following computations present depreciation on both bases for 2010 and 2011.

2011 2010

Straight-line $ 57,500 $ 57,500

Declining-balance $ 92,000 $ 115,000

5. In reviewing the December 31, 2011, inventory, the company discovered errors in its inventory-taking procedures that have caused inventories for the last 3 years to be incorrect, as follows. The company has already made an entry that established the incorrect December 31, 2012, inventory amount.

December 31, 2010 Understated $ 32,000

December 31, 2011 Understated $ 51,000

December 31, 2012 Overstated $ 9,500