Question

Nanki Corporation purchased equipment on January 1,2016, for $640,000. In 2016 and 2017, Nanki depreciated the asset on a straight-line basis with an estimated useful life of ten years and a $10,000 residual value. In 2018, due to changes in technology, Nanki revised the useful life to a total of eight years with no residual value. What depreciation would Nanki record for the year 2018 on this equipment - show the journal entry to record the depreciation.

Account	Dr.	Cr.

Calculations:

Answer 1

depreciation expense -equipment a/c	$85,667
.................To Accumulated depreciation - equipment		$85,667

calculations:

annual depreciation as calculated on january 1 2016

=> (purchase price - salvage value) / 10 years.

=> (640,000 - 10,000) / 10 years.

=>63,000.

depreciation expense of 2016 and 2017 =>63,000 * 2 =>126,000..

book value as on january 1 2018 =>640,000 - 126,000

=>514,000.

depreciation from 2018 = (book value - salvage value) / remaining life.

=> (514,000 - 0) / (8 years new life - 2 years expired)

=>$85,666.6666

=>85,667...(rounded to two decimals).