Machinery purchased for $68,400 by Headland Co. in 2013 was originally estimated

Question

Machinery purchased for $68,400 by Headland Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of $4,560 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 $5,130 at the end of that time. Assume straight-line depreciation.

a) 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.)

b) 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

Cost = $68400

Useful life = 8 years

Salvage Value = $4560

Depreciation per annum = (Cost - Salvage Value) / Useful life = (68400-4560)/8 = $7980

Depreciation already provided

= Depreciation for five years

= Depreciation per annum * 5

= $7980 * 5

= $39900

Revised Useful life = 10 years

Salvage value = $5130

Depreciation from year 6

= (Cost - Accumulated Depreciation - Revised Salvage Value) / Remaining Useful life

= (68400-39900-5130) / (10-5)

= $4674

Requirement a:

No Entry

Requirement b:

Depreciation Expense a/c Dr $4674

To Machinery a/c $4674

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