Question

Teal Products purchased a machine on January 1, 2014, for $60,200 and estimated its useful life...

Teal Products purchased a machine on January 1, 2014, for $60,200 and estimated its useful life and salvage value at five years and $12,800, respectively. On January 1, 2017, the company added three years to the original useful-life estimate.

(a) Compute the book value of the machine as of January 1, 2017, assuming that Teal uses the straight-line method of depreciation.

(b) Prepare the journal entry entered by the company to record depreciation on December 31, 2017.

Business   Accounting   
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Answer #1

Depreciation under Straight line method = (Cost - Salvage value) / Estimated useful life

= ($60,200 - $12,800) / 5

= $9,480

Accumulated depreciation as of January 1, 2017 = $9,480 * 3 = $28,440

Book value as of January 1, 2017 = Cost - Accumulated depreciation as of January 1, 2017

= $60,200 - $28,440

= $31,760

(b) Depreciation for 2017 = (Book value - Salvage value) / Remaining useful life

= ($31,760 - $12,800) / (5 + 3 - 3)

= $3,792

Depreciation expense $3,792
Accumulated depreciation $3,792
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