Wardell Company purchased a mini computer on January 1, 2016, at a cost of $44,2
ID: 2533304 • Letter: W
Question
Wardell Company purchased a mini computer on January 1, 2016, at a cost of $44,250. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $4,500. On January 1, 2018, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $870.
Required:
1. Prepare the appropriate adjusting entry for depreciation in 2018 to reflect the revised estimate.
2. Prepare the appropriate adjusting entry for depreciation in 2018 to reflect the revised estimate. Assuming that the company uses the sum-of-the-years'-digits method instead of the straight-line method.
Explanation / Answer
1.
Cost
44250
Old Annual Depreciation (39750/5 yrs.)
7950
Depreciation To Date (2016-2017)(7950 x 2 years)
15900
Book Value
28350
Revised Residual Value
(870)
Revised Depreciable Base
27480
Estimated Remaining Life (10 yrs. – 2 yrs. Used)
/ 8
New Annual Depreciation
3435
General Journal
Debit
Credit
Depreciation Expense
3435
Accumulated Depreciation
3435
2.
Cost
44250
Previous Depreciation:
2016(39750/ 5/15)
13250
2017(39750/ 4/15)
10600
Depreciation To Date (2016-2017)
23850
Book Value
20400
Revised Residual Value
(870)
Revised Depreciable Base
19530
Estimated Remaining Life (10 yrs. – 2 yrs. Used)
X 8/36
New Annual Depreciation
4340
General Journal
Debit
Credit
Depreciation Expense
4340
Accumulated Depreciation
4340
Cost
44250
Old Annual Depreciation (39750/5 yrs.)
7950
Depreciation To Date (2016-2017)(7950 x 2 years)
15900
Book Value
28350
Revised Residual Value
(870)
Revised Depreciable Base
27480
Estimated Remaining Life (10 yrs. – 2 yrs. Used)
/ 8
New Annual Depreciation
3435