Tasty Treats bought bought baking equipment to mass produce baked goods for $335
ID: 2456422 • Letter: T
Question
Tasty Treats bought bought baking equipment to mass produce baked goods for $335,000 on January 1, 20X0. The useful life is estimated at 6 years, scrap value is estimated at $15,000, total production is estimated at 660,000 units. Assume that during 20X2 the useful remained life is now determined to be seven more years(including 20X2) and the expected salvage value is $3,000. Using the straight line method provide the new depreciation journal entry that Tasty Treats will record for 20X2? Show all calculations.
Explanation / Answer
Tasty Treats bought baking equipment to mass produce baked goods for $335,000 on January 1, 20X0. The useful life is estimated at 6 years, scrap value is estimated at $15,000,
total production is estimated at 660,000 units.
Assume that during 20X2 the useful remained life is now determined to be seven more years(including 20X2) and the expected salvage value is $3,000. Using the straight line method provide the new depreciation journal entry that Tasty Treats will record for 20X2? Show all calculations.
Step 1:
Straight Line Method= (Cost - Salvage Value) / Life
Cost =$335,000
Salvage Value=$15,000
Life = 6 years
Value of Depreciable Asset=(335,000-15,000)=320,000
=(335,000-15,000)/6
=320,000/6
=53,333 Depreciation per Annum ( rounded off )
Written down Value of Asset in the beginning of 20X2 after charging 2 years depreciation is
=Original value of asset – depreciation charged till beginning of 20X2(for two years)
=335,000-(53,333 X 2)
=335,000-106,666
=$228,334
Step 2:
Now life of the asset is changed i.e 7 more years .
Below are revised values
Straight Line Method= (Cost - Salvage Value) / Life
Cost =$228,334
Salvage Value=$3,000
Life = 7 years
Value of Depreciable Asset=(228,334-3,000)=225,334
=(228,334-3,000)/7
=225,334/7
= $32,191 Depreciation per Annum ( rounded off )
Step 3:
Hence depreciation is to be charged for the year 20X2 is $ 32,191
Journal Entry: Debit Credit
Depreciation Expense 32,191
Asset 32,191
You can use also the term “Accumulated Depreciation” if you are not charging directly to Asset.