Question

Wardell Company purchased a mainframe on January 1, 2019, at a cost of $58,000. The computer was depreciated using the straight-line method over an estimated five-year life with an estimated residual value of $16,000. On January 1, 2021, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $2,200.

2. Prepare the year-end journal entry for depreciation in 2021. Assume that the company uses the sum-of-the-years' -digits method instead of the straight-line method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to nearest whole dollar.)

Answer 1

Computation of book value as on January 1, 2021.

Depreciation expense per year (SLM) = [cost - residual value) / useful life = [$58,000 - $16,000] / 5 = $8,400

Accumulated depreciation as on January 1, 2021 = $8,400 * 2 = $16,800

Book value of Equipment as on January 1, 2021 = $58,000 - ($8,400 * 2) = $41,200

Computation of depreciation expense in 2021 using sum-of-years-digits method.

Total sum of years = 1+2+3+4+5+6+7+8 = 36

Remaining useful life = 8 years

Depreciation expense = [cost - residual value] * remaining useful life / total sum of years =

Depreciation expense = [$41,200 - $2,200] * 8 / 36 = $8,666.67

or Depreciation expense = 8,667

Depreciation expense account........................Debit $8,667

To Accumulated Depreciation account..........Credit $8,667