Wardell Company purchased a minicomputer on January 1, 2016, at a cost of $54,00
ID: 2584373 • Letter: W
Question
Wardell Company purchased a minicomputer on January 1, 2016, at a cost of $54,000. The computer was depreciated using the straight-line method over an estimated five-year life with an estimated residual value of $6,000. 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 $3,600.
Required:
1. Prepare the year-end journal entry for depreciation in 2018. No depreciation was recorded during the year.
2. Prepare the year-end journal entry for depreciation in 2018. Assume that the company uses the sum-of-the-years' -digits method instead of the straight-line method.
Explanation / Answer
1. Prepare the year-end journal entry for depreciation in 2018. No depreciation was recorded during the year.
Dep per year (2016 & 2017) = (54000-6000)/5 = 9600 per year
2018 or onwords dep = (54000-9600-9600-3600)/8 = 3900 per year
(To record depreciation )
2. Prepare the year-end journal entry for depreciation in 2018. Assume that the company uses the sum-of-the-years' -digits method instead of the straight-line method.
Sum of year digit method = (5+4+3+2+1) = 15
Dep 2016 = (54000-6000)*5/15 = 16000
Dep 2017 = (54000-6000)*4/15 = 12800
After change in prediction :
sum of year digit = (8+7+6+5+4+3+2+1)= 36
2018 or onwords dep = (54000-16000-12800-3600)*8/36 = 5600 per year
(To record depreciation )
Date accounts & explanation debit credit 2018 Depreciation expenses a/c 3900 Accumlated depreciation 3900(To record depreciation )