Machinery purchased for $70,800 by Sandhill Co. in 2013 was originally estimated

Question

Machinery purchased for $70,800 by Sandhill Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of $4,720 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 $5,310 at the end of that time. Assume straight-line depreciation.

Account Titles and Explanation

Debit

Credit

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Account Titles and Explanation

Debit

Credit

Machinery purchased for $70,800 by Sandhill Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of $4,720 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 $5,310 at the end of that time. Assume straight-line depreciation.

Explanation / Answer

Solution:

b.

Account Title

Debit

Credit

Depreciation Expense--Machinery

4838

Accumulated Depreciation--Machinery

4838

Explanation:

(70800 - 4720) / 8 = 8260 previous depreciation per year
8260 x 5 = 41300 accumulated depreciation
70800 - 41300 = 29500 current book value
(29500 – 5310 new salvage value) / 5 years remaining useful life = 4838 new depreciation

Account Title

Debit

Credit

Depreciation Expense--Machinery

4838

Accumulated Depreciation--Machinery

4838

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