Machinery purchased for $61,800 by Shamrock Co. in 2013 was originally estimated

Question

Machinery purchased for $61,800 by Shamrock Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of $4,120 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 $4,635 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.) Account Titles and Explanation SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Prepare the entry to record depreciation for 2018. (If no entry is required, select "No entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Use Machinery related account.) Account Titles and Explanation Credit Click if you would like to Show Work for this question: Open Show Worlk

Explanation / Answer

1. No entry is required to correct prior year depreciation because this is a change in accounting estimate, not accounting principle.

2. Accumulated depreciation for the first five years of the asset's life = $ ( 61,800 - 4,120) / 8 x 5 = $ 36,050

Therefore, book value at the beginning of 2018 = $ 61,800 - $ 36,050 = $ 25,750

Annual depreciation for the remaining 5 years = $ ( 25,750 - 4,635) / 5 = $ 4,223.

Date Account Titles Debit Credit $ $ December 31, 2018 Depreciation Expense 4,223 Accumulated Depreciation : Equipment 4,223

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