Machinery purchased for $69,600 by Sarasota Co. in 2013 was originally estimated to have a life...

Machinery purchased for $69,600 by Sarasota Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of $4,640 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 $5,220 at the end of that time. Assume straight-line depreciation.

Prepare the entry to correct the prior year's depreciation, if necessary.

Prepare the entry to record depreciation for 2018.

Expert Solution

Any change in the estimates of the depreciation is to be accounted for Prospectively, hence, no need to make amendments for the entries passed in the earlier years.

It is given that, after passing 5 years, it is assumed that the total life of the machinery is estimated as 10 years with a salvage value of $5,220.

Earlier in 2013 it was assumed that the life of the machinery is 8 years with a salvage value of $4,640, depreciation would have been calculated for the first 5 years as = 8,120 per year ({$69,600-$4,640}÷8years)

The written down value of the machinery in the beginning of 2018 would be $29,000 ($69,600-{$8,120x5})

There is still 5 years of remaing life, in which the machinery is to be depreciated resulting in a salvage value of $5,220.

Therefore, depreciation for the year 2018 would be,

= $4,756.

The remaining useful life is computed by deducting the completed period of 5 years from the total life of 10 years.

The journal entry to record the depreciation for 2018 is as follows:

Hope the answer helps!!

ekkarill92 answered 2 years ago

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