Wardell Company purchased a minicomputer on January 1, 2014, at a cost of $47,00
ID: 2456587 • Letter: W
Question
Wardell Company purchased a minicomputer on January 1, 2014, at a cost of $47,000. The computer was depreciated using the straight-line method over an estimated five-year life with an estimated residual value of $5,000. On January 1, 2016, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $3,800.
Prepare the appropriate adjusting entry for depreciation in 2016 to reflect the revised estimate.
2. Prepare the appropriate adjusting entry for depreciation in 2016 assuming that the company uses the sum-of-the-years' -digits method instead of the straight-line method.
Wardell Company purchased a minicomputer on January 1, 2014, at a cost of $47,000. The computer was depreciated using the straight-line method over an estimated five-year life with an estimated residual value of $5,000. On January 1, 2016, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $3,800.
Explanation / Answer
Answer : 1
Depreciation as per old Value
=(47000-5000)/5 = $ 8400 p.a.
Depreciation for 2 years = 8400*2 = 16800
Depreciation After New Life & Residule value
= (47000-3800)/10 = 4320
Depreciation of two years = 4320*2 = 8640
Differnce between depreciation = 16800-8640 = 8160
Journal entry will be pass as follow
account Debit Credit
Asset a/c 8160
To P& L a/c 8160
(Being Depreciation adjustment made)
Answer - 2
Depreciation as per sum -of-the years'-digits method for new value
Depreciation by sum-of the years'-digits method = Remaining life asset including current year *cost of asset/ sum of digits life of the assets
Sum of digits represnting life of Asset = n(n+1)/2
= 10 (10+1)/2 = 10*11/2 = 55
For 2014 Depreciation by sum-of the years'-digits method = 10/55*43200
= 7854.55
For 2015 Depreciation by sum-of the years'-digits method = 9/55*43200
= 7069.09
Total depreciation for two years = 7854.55+7069.09 = 14923.64
Differnce between depreciation = 16800-14923.64 = 1876.36
Journal entry will be pass as follow
account Debit Credit
Asset a/c 1876.36
To P& L a/c 1876.36
(Being Depreciation adjustment made)