Problem 5 Annual depreciation expense on equipment purchased a few years ago (us
ID: 2579936 • Letter: P
Question
Problem 5 Annual depreciation expense on equipment purchased a few years ago (using the straight-line method) is $5,000. The cost of the equipment was $100,000. The current book value of the equipment (January 1, 2018) is $85,000. At the time of purchase, the asset was estimated to have a zero salvage value. On January 1, 2018, the company decided to reduce the original useful life by 50% and to establish a salvage value of $5,000. The firm also decided double- declining-balance depreciation was more appropriate. Ignore tax effects. Required: (1.) Record the journal entry, if any, to report the accounting change. (2.) Record the annual depreciation for 2018.Explanation / Answer
(1) record Journal entry , if Any , to Report The accounting Change No Entry is required Because of Simultaneous change in accounting principle and Estimate. This is Treated as a change in Estimate (2) record the Annual Depreciation for 2018 Original useful Life = Cost of the asset - Salvage Value / Annual Depreciation = $100,000 - 0 /$5000 =20 years Reduced original Useful Life = 20 years *50% =10 Years Remaining Useful Life = 10 Years - 3 years (15000/5000 ) = 7 Years Depreciation for the year 2018 = $85000 * 2/7 =$24,285.71 December 31 ,2018 Debit credit Depreciation Expense A/c 24285.71 To Accumulated Depreciation A/c 24285.71 (Being Depreciation for 2018 has been recorded)