Exercise 11-11 Machinery purchased for $63,000 by Whispering Co. in 2013 was ori
ID: 2524970 • Letter: E
Question
Exercise 11-11
Machinery purchased for $63,000 by Whispering Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of $4,200 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2018, it is determined that the total estimated life should be 10 years with a salvage value of $4,725 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.)
Prepare the entry to record depreciation for 2018. (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.)
List of Accounts
Accumulated Depreciation-Building
Accumulated Depreciation-Equipment
Accumulated Depreciation-Machinery
Accumulated Depreciation-Plant Assets
Accumulated Depreciation-Trucks
Buildings
Cash
Coal Mine
Depreciation Expense
Equipment
Gain on Disposal of Machinery
Inventory
Loss on Disposal of Plant Assets
Loss on Impairment
Machinery
Maintenance and Repairs Expense
No Entry
Paid-in Capital in Excess of Par - Common Stock
Plant Assets
Recovery of Loss from Impairment
Retained Earnings
Trucks
Exercise 11-11
Machinery purchased for $63,000 by Whispering Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of $4,200 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2018, it is determined that the total estimated life should be 10 years with a salvage value of $4,725 at the end of that time. Assume straight-line depreciation.
Explanation / Answer
A)As per IND AS-16, Property ,Plant and Equipment, Change in Useful life or salvage value should be given only the prospective effect.
Hence, There is no need to correct the prior year's depreciation.
Therefore, no entry is required.
B)As per the given facts, cost of machinery =$63,000
Useful Life of the Machinery = 8 Years
salvage Value =$4,200
Hence Carrying Amount of the asset at the beginning of 2018 will be Cost of the machinery-Accumulated Depreciation.
Depreciation = (Cost of the asset- Salvage Value)/Useful life of the asset.
= ($63,000-$4,200) /8
= $7,350
Hence Accumulated Depreciation for 5 years will be $7,350*5=$36,750
Therefore, Carrying amount of machinery at the beginning of 2018 will be
=$63,000-$ 36,750
= $ 26,250.
From the year 2018, depreciation of machinery should be calculated on the remaining carrying amount over the remaining useful life of the asset.
Given facts are
Revised useful life = 10 years
Revised salvage value = $4,725
Hence depreciation for 2018 will be
Depreciation = ($26,250-$4,725)/5*
=$4,305
* Remaining useful life= Revised useful life- Completed useful life
= 10 years- 5 years.
Hence , the entry to record depreciation for the year 2018 will be
Accumulated depreciation-Machinery a/c Dr $4,305
To Machinery a/c $4,305
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