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ype here Search Gmail Yahoo Outic ybsc.bryantstratton.edu/webapps/assessment/take/launch jsp?course assessment id 145417 1&course_id- 48648 1&content id-2 QUESTION 8 On January 1, Year 1, Naples purchased a computer system that cost $1,480,000. The estimated useful life of the computer is 3 years and salvage value is $40,000. Straight-line depreciation is to be used. On January1 Year 2, Naples determined that the estimated useful life of the computer would be 4 years instead of 3 The estimated salvage value will only be $10,000. Prepare the journal entry to record depreciation expense for Year 1. Prepare the journal entry to record depreciation expense for Year 2.Explanation / Answer
We can use prospective effect for change in depreciation policy. Under this method change in method or policy considered for remaining useful life of assets from change in method or policy is affected. In this method, adjustment for date of change in method or useful life not required.
Cost of computer system
1480000
Less: Salvage value
-40000
Depreciable value during useful life (three year)
1440000
Useful life
3 years
Depreciation expense for First year (1440000/3)
480000
On second year, change in useful life and salvage value
Cost of computer system
1480000
Less: Salvage value
-10000
Depreciable value during useful life (four year)
1470000
Less: depreciation charged in first year
-480000
Depreciable value for remaining three years
990000
Depreciation expense for Second year (990000/3)
330000
Journal entries
Date
Account title
Debit
Credit
Year 1
Depreciation expense
480000
Accumulated depreciation - computer system
480000
(To record depreciation expense.)
Year 2
Depreciation expense
330000
Accumulated depreciation - computer system
330000
(To record depreciation expense.)
We can use prospective effect for change in depreciation policy. Under this method change in method or policy considered for remaining useful life of assets from change in method or policy is affected. In this method, adjustment for date of change in method or useful life not required.
Cost of computer system
1480000
Less: Salvage value
-40000
Depreciable value during useful life (three year)
1440000
Useful life
3 years
Depreciation expense for First year (1440000/3)
480000
On second year, change in useful life and salvage value
Cost of computer system
1480000
Less: Salvage value
-10000
Depreciable value during useful life (four year)
1470000
Less: depreciation charged in first year
-480000
Depreciable value for remaining three years
990000
Depreciation expense for Second year (990000/3)
330000
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