Wardell Company purchased a mini computer on January 1, 2014, at a cost of $32,3
ID: 2575027 • Letter: W
Question
Wardell Company purchased a mini computer on January 1, 2014, at a cost of $32,350. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of S3,100. 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 $930 Required: 1. Prepare the appropriate adjusting entry for depreciation in 2016 to reflect the revised estimate. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the depreciation Nota: Enter dabits bafore cradits. Event General Journal Debit Credit Record entry Clear entry View general journal 2. Prepare the appropriate adjusting entry for depreciation in 2016 to reflect the revised estimate Assuming that the company uses the sum-of-the-years'-digits method instead of the straight-line method. (If no entry is required for a transactionlevent, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the depreciation Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journalExplanation / Answer
Preparation of financial statements includes appropriate estimates.These estimates are based on management experience and conditions as on date.so on January,2016 management came to know that asset having a life of 10 years,this is comes under change of accounting estimate.
So when ever accounting estimate is changed the effect on financial statements should be retrospective only.
Fair Value of asset on January 1,2016.
= $ 32350 - (32350- 3100/5*2)
= $ 20,650.
From January 2016 estimated value and use ful is changed
So, $ 20,650- 930/8
= 2465 per year depreciation.
Not required to change total amount of depreciation,per year depreciation amount only will change.
On January ,2016 no adjustment entry.