Question

Wardell Company purchased a mini computer on January 1, 2016, at a cost of $45,100. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $4,600. 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 $900.

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

a) Adjusting entry for 2018 :

Straight line dep present = (45100-4600/5) = 8100 per year

Accumlated dep = 8100*2 = 16200

2018 Revised dep = (45100-900-16200)/8 = 3500 per year

Date	accounts & explanation	debit	credit
	Depreciation expense	3500
	Accumlated depreciation		3500
	(To record adjusting entry)

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.

Previous accumlated dep for 2016 to 2017 = 5+4+3+2+1 = 15

Accumalated dep for 2016 to 2017 = (45100-4600)*9/15 = 24300

revised = 8+7+6+5+4+3+2+1 = 36

Revised dep for 2018 = (45100-900-24300)*8/36 = 4422

Date	accounts & explanation	debit	credit
	Depreciation expense	4422
	Accumlated depreciation		4422
	(To record depreciation)