Alteran Corporation purchased office equipment for $1.2 million in 2015. The equ

Question

Alteran Corporation purchased office equipment for $1.2 million in 2015. The equipment is being depreciated over a 10-year life using the sum-of-the-years'-digits method. The residual value is expected to be $100,000. At the beginning of 2018, Alteran decided to change to the straight-line depreciation method for this equipment. Required: Prepare the journal entry to record depreciation for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

Explanation / Answer

Solution :- Total depreciation on equipment (from Year 2015 to Year 2017 i.e., Three Years) = (1200000 - 100000) * (10 + 9 + 8) / (10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1)

= 1100000 * 27 / 55

= $ 540000.

Book value of equipment at the beginning of Year 2018 = 1200000 - 540000 = $ 660000.

Depreciation on equipment for Year 2018 (Straight line depreciation method) = (660000 - 100000) / (10 - 3)

= 560000 / 7

= $ 80,000.

Journal entry (for recording the depreciation on equipment for Year 2018)

Depreciation expense A/c Dr.

To Accumulated Depreciation A/c

80000

80000

Date Particulars Debit ($) Credit ($) 2018

Depreciation expense A/c Dr.

To Accumulated Depreciation A/c

80000

80000

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