P8-11 Analyzing and Recording Entries Related to a Change in Estimated Life and
ID: 2556001 • Letter: P
Question
P8-11 Analyzing and Recording Entries Related to a Change in Estimated Life and Residual Value LO8-3 Kano Corporation is a global publisher of magazines, books, and music and video collections and is a leading direct mail marketer. Many direct mail marketers use high-speed Didde press equipment to print their advertisements. These presses can cost more than $1 million. Assume that Kano owns a Didde press acquired at an original cost of $490,000. It is being depreciated on a straight-line basis over a 20-year estimated useful life and has a $59,000 estimated residual value. At the end of the prior year, the press had been depreciated for a full five years. At the beginning of January of the current year, a decision was made, on the basis of improved maintenance procedures, that a total estimated useful life of 25 years and a residual value of $78,000 would be more realistic. The accounting period ends December 31 Required: 1-a. Compute the amount of depreciation expense recorded in the prior year Depreciation amount -b. Compute the book value of the printing press at the end of the prior year. Book value 2. Compute the amount of depreciation that should be recorded in the current year. (Round your answer to the nearest dollar amount.)Explanation / Answer
Req 1-a: Cost: $490,000 Salvage: $ 59,000 Life: 20 years Depreciable amouunt: Cost -Salvage value =490,000-59,000 = $431,000 Annual Depreciation (431000/20) = $21,550 Prior period years: 5 years Total Depreciation charged in Prior period: (21,550*5): $107,750 Req 1-b: Cost of Assets: 490,000 Less: Depreciation charged for 5 years 107,750 Book value of Assets 382,250 Req 2. Book value in the beginning 382,250 Less: Revised salvage value 78000 Depreciable amount 304,250 Remaining revised estimated life (25-5) 20 Annual Depreciation 15212.5 Depreciation amount for current year: 15,213
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