Question

Wardell Company purchased a mainframe on January 1, 2016, at a cost of $56,000. The computer was depreciated using the straight-line method over an estimated five-year life with an estimated residual value of $11,000. 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 $2,000.

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.

Answer 1

1) Accumulated depreciation = (56000-11000/5*2) = 18000

revised depreciation = (56000-18000-2000)/8 = 4500

Date	account and explanation	Debit	Credit
2018	Depreciation expense	4500
	Accumulated depreciation		4500

2) Accumulated depreciation = (56000-11000/15*9) = 27000

revised depreciation = (56000-27000-2000)/36*8 = 6000

Date	account and explanation	Debit	Credit
2018	Depreciation expense	6000
	Accumulated depreciation		6000