Exercise 11-11 Machinery purchased for $ 123,000 by Tom Brady Co. in 2010 was or
ID: 2481820 • Letter: E
Question
Exercise 11-11 Machinery purchased for $ 123,000 by Tom Brady Co. in 2010 was originally estimated to have a life of 8 years with a salvage value of $ 8,200 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2015, it is determined that the total estimated life should be 10 years with a salvage value of $ 9,225 at the end of that time. Assume straight-line depreciation. Prepare the entry to correct the prior year's depreciation, if necessary. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare the entry to record depreciation for 2015. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Use Machinery related account.) Account Titles and Explanation Debit Credit
Explanation / Answer
When there is a change in residual value, it is adjusted in future calculations of depreciation calculations by deducting the revised residual value from the carrying amount of asset in the year residual value changed. In this case the prior year depreciation need not be revised. Depreciation shall infact be calculted as:
(Book value - Revised Salvage Value) / Remaining life
Hence No Entry is required.
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