Question

Wardell Company purchased a mini computer on January 1, 2016, at a cost of $44,250. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $4,500. 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 $870.

Required:
1. Prepare the appropriate adjusting entry for depreciation in 2018 to reflect the revised estimate.
2. Prepare the appropriate adjusting entry for depreciation in 2018 to reflect the revised estimate. Assuming that the company uses the sum-of-the-years'-digits method instead of the straight-line method.

Answer 1

1.

Cost	44250
Old Annual Depreciation (39750/5 yrs.)	7950
Depreciation To Date (2016-2017)(7950 x 2 years)	15900
Book Value	28350
Revised Residual Value	(870)
Revised Depreciable Base	27480
Estimated Remaining Life (10 yrs. – 2 yrs. Used)	/ 8
New Annual Depreciation	3435

General Journal	Debit	Credit
Depreciation Expense	3435
Accumulated Depreciation		3435

2.

Cost	44250
Previous Depreciation:
2016(39750/ 5/15)	13250
2017(39750/ 4/15)	10600
Depreciation To Date (2016-2017)	23850
Book Value	20400
Revised Residual Value	(870)
Revised Depreciable Base	19530
Estimated Remaining Life (10 yrs. – 2 yrs. Used)	X 8/36
New Annual Depreciation	4340

General Journal	Debit	Credit
Depreciation Expense	4340
Accumulated Depreciation		4340