Question

1. The company borrowed $100,000 on a new note payable and required semiannual interest payments. the...

1. The company borrowed $100,000 on a new note payable and required semiannual interest payments. the new note is borrowed on May 1, 2017.

2. At the end of 2017, the company determines that the useful life of office equipment is extended to 10 years. Original estimate: historical cost: 20,000, estimated useful life 8 years, date acquired 1/1/2014

Adjusting entries at the end of the year 2017

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Answer #1

Answer.

Adjusting entries at the end of the year 2017

Date . Particular . Amount. ($)

Dr . Cr

31/3/2017. Bank account 100000

To note payable. 100000

31/3/2017 . Depreciation expenses . 1437.5

To accumulated dep. 1437.5

Working notes.

Calculations of depreciation when estimation of useful life of asset is changed.

Machine required 1 /1 /2014

Useful life 8 years

Salvage value nil

Straight line depreciation method will be used

Depreciation till date 2017

1 January 2014 to 31stMarch2016

=( Cost of acquisition - salvage valueu)/useful life

For year ended 31st March 2014 depreciation will be

= $ 20000/8

=(2500/12)×3

=$ 625

For the year ended 31st March 2015 depreciation will be

=20000/8

=$2500

For the year ended 31st March 2016

= 20000/8

= $2500

Total depreciation of 3 years

625+2500+2500= 5625 accumulated depreciation

Depreciation for the year ended 31st March 2017

Historical cost 20000

Accumulated depreciation 5625

Useful life now 10 year depreciation will be

(Historical cost - accumulated depreciation) - salvage value/useful life

20000-5625/10year

=$ 1437.5 p.a

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