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Exercise 20-17 (Algo) Change in estimate; useful life and residual value of equipment [LO20-4]

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Wardell Company purchased a mini computer on January 1, 2019, at a cost of $43,400. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $4,400. 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 $600.

Exercise 20-17 (Algo) Part 1

Required:
1. Prepare the appropriate adjusting entry for depreciation in 2021 to reflect the revised estimate. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Annual depreciation = (Cost price – Residual value)/Useful life

= (43,400 - 4,400)/5

= 39,000/5

= $7,800

Accumulated depreciation for two years = Annual depreciation x 2

= 7,800 x 2

= $15,600

Book value of equipment On January 1, 2021 = Cost price – Accumulated depreciation for 2 years

= 43,400 - 15,600

= $27,800

New depreciable cost = Book value of asset – Revised residual value

= 27,800 - 600

= $27,200

Revised annual depreciation = New depreciable cost/Remaining useful life

= 27,200/8

= $3,475

Journal

Date	Account title	Debit	Credit
January 1, 2021	Depreciation expense	$3,475
	Accumulated depreciation - Equipment		$3,475

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