Machinery purchased for $74,880 by Carver Co. in 2008 was originally estimated t

Question

Machinery purchased for $74,880 by Carver Co. in 2008 was originally estimated to have a life of 8 years with a salvage value of $5,760 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2013, it is determined that the total estimated life should be 10 years with a salvage value of $6,480 at the end of that time. Assume straight-line depreciation.

(a) Prepare the entry to correct the prior years Machinery purchased for $74,880 by Carver Co. in 2008 was originally estimated to have a life of 8 years with a salvage value of $5,760 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2013, it is determined that the total estimated life should be 10 years with a salvage value of $6,480 at the end of that time. Assume straight-line depreciation.

Explanation / Answer

Hi,

Please find the answer as follows:

Part 1:

No correcting entry is required in this case.

Part 2:

Book Value (1/1/2013) = 74880 - (74880 - 5760)/8*5 = 31680

Remaining Life = 10 - 5 = 5 Years

Revised Salvage Value = (31680 - 6480)/5 = 5040

Journal Entry

Depreciation Expense Dr. 5040

Accumulated Depreciation - Equipment Cr. 5040

Thanks.

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