Overwriters Labs, Inc. purchased a building for $300,000 which was originally es

Question

Overwriters Labs, Inc. purchased a building for $300,000 which was originally estimated to have a useful life of 15 years and salvage value of $30,000. Depreciation has been recorded for 5 years on a straight-line basis. On January 1, 2015, the estimate of the useful life is revised so that the asset is considered to have a total life of 25 years and a revised salvage value of $20,000. Instructions Prepare the entry (if any) to correct the prior years' depreciation. (if not entry write "No entry required") Prepare the entry to record depreciation for 2015. Do previous year's financial statements need to be restated because of this Yes No

Explanation / Answer

For five years depreciation charged was 18000*5 = 90,000

Book value 300,000 – 90,000 = 210,000

Depreciation now

= (210,000 – 20,000)/(25-5)

= 9,500

Entry

Depreciation

$9,500

To Accumulated depreciation

$9,500

3) No previous years financials need to be restated

Depreciation

$9,500

To Accumulated depreciation

$9,500

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.