Question

Wardell Company purchased a mini computer on January 1, 2016, at a cost of $33,200. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $3,200. 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 $600.

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) Straight line dep = (33200-3200/5) = 6000 per year

Revised dep = (33200-12000-600)/8 = 2575 Per year

Date	account and explanation	debit	credit
2018	Depreciation expense	2575
	Accumlated depreciation		2575
	(To record depreciation expense)

2) Sum of year digit = 5+4+3+2+1 = 15

Accumlated Original dep = (33200-3200)*9/15 =18000

Revised sum of year digit = 8+7+6+5+4+3+2+1 = 36

Revised dep = (33200-18000-600)*8/36 = 3244

Date	account and explanation	debit	credit
2018	Depreciation expense	3244
	Accumlated depreciation		3244
	(To record depreciation expense)