Roscoe Co. purchased equipment for $1,000,000 which was estimated to have a useful life of 15...

Roscoe Co. purchased equipment for $1,000,000 which was estimated to have a useful life of 15 years with a salvage value of $25,000 at the end of that time. Depreciation has been entered for 5 years on a straight-line basis. In 2018, it is determined that the total estimated life should be 10 years with no salvage value at the end of that time. Instructions

(a) Prepare the entry (if any) to correct the prior years’ depreciation.

(b) Prepare the entry to record depreciation for 2018.

Expert Solution

Straight line Method
A	Cost	$ 10,00,000.00
B	Residual Value	$ 25,000.00
C=A - B	Depreciable base	$ 9,75,000.00
D	Life [in years left ]	15
E=C/D	Annual SLM depreciation	$ 65,000.00

Depreciation schedule when depreciation was recorded assuming 15 years life and 25000 Residual value.
Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$ 10,00,000.00	$ 65,000.00	$ 9,35,000.00	$ 65,000.00
2	$ 9,35,000.00	$ 65,000.00	$ 8,70,000.00	$ 1,30,000.00
3	$ 8,70,000.00	$ 65,000.00	$ 8,05,000.00	$ 1,95,000.00
4	$ 8,05,000.00	$ 65,000.00	$ 7,40,000.00	$ 2,60,000.00
5	$ 7,40,000.00	$ 65,000.00	$ 6,75,000.00	$ 3,25,000.00

Straight line Method
A	Cost	$ 10,00,000.00
B	Residual Value	$ -
C=A - B	Depreciable base	$ 10,00,000.00
D	Life [in years left ]	10
E=C/D	Annual SLM depreciation	$ 1,00,000.00

Depreciation that should have been recorded.
Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$ 10,00,000.00	$ 1,00,000.00	$ 9,00,000.00	$ 1,00,000.00
2	$ 9,00,000.00	$ 1,00,000.00	$ 8,00,000.00	$ 2,00,000.00
3	$ 8,00,000.00	$ 1,00,000.00	$ 7,00,000.00	$ 3,00,000.00
4	$ 7,00,000.00	$ 1,00,000.00	$ 6,00,000.00	$ 4,00,000.00
5	$ 6,00,000.00	$ 1,00,000.00	$ 5,00,000.00	$ 5,00,000.00
6	$ 5,00,000.00	$ 1,00,000.00	$ 4,00,000.00	$ 6,00,000.00

Requirement a

Transaction	Accounts title	Debit	Credit
(a).	Depreciation expense-Equipment	$ 1,75,000.00
	Accumulated Depreciation - Equipment		$ 1,75,000.00
	(Correcting entry.)

Correcting entry will record the additional depreciation that should be made till year 5. Total depreciation as per previous assumptions was $ 325,000 which should have been $500000 so $175000 is recorded to cover the difference.

Requirement (b)

Transaction	Accounts title	Debit	Credit
(b).	Depreciation expense-Equipment	$ 1,00,000.00
	Accumulated Depreciation - Equipment		$ 1,00,000.00
	(depreciation expense recorded for 2018)

ekkarill92 answered 1 year ago

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