Exercise 11-11 Machinery purchased for $69,600 by Ayayai Co. in 2013 was origina
ID: 2535960 • Letter: E
Question
Exercise 11-11
Machinery purchased for $69,600 by Ayayai Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of $4,640 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 $5,220 at the end of that time. Assume straight-line depreciation.
1.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.)
2.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.)
Exercise 11-11
Machinery purchased for $69,600 by Ayayai Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of $4,640 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 $5,220 at the end of that time. Assume straight-line depreciation.
1.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.)
2.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.)
Explanation / Answer
This is a case of change of estimates. In case of change in salvage value and useful life of asset, the prior years depreciation need not be revised. Only the current year and future year depreciation are to be calculated using revised salvage value. The book value at the beginning of year when estimates are changed becones the new cost.
1. Since prior year's depreciation does not need to be corrected, no entry shall be made.
"No entry"
2. Annual depreciation charged for prior years = ($69600 - $4640) /8 = $8120
Book value at beginning of 2018 = $69600 - ($8120*5) = $29000
Depreciation for 2018 = ($29000- $5220) / 5 = $4756
Depreciation for 2018 would be $4756
The journal entry would be:
Depreciation Expense Dr $4756
To Accumulated Depreciation $4756
(Instead of accumulated depreciation Asset account can also be credited)
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