Question

Wardell Company purchased a mini computer on January 1, 2016, at a cost of $45,100. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $4,600. On January 1, 2018, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $900.

Required:
1. Prepare the appropriate adjusting entry for depreciation in 2018 to reflect the revised estimate.
2. Prepare the appropriate adjusting entry for depreciation in 2018 to reflect the revised estimate. Assuming that the company uses the sum-of-the-years'-digits method instead of the straight-line method.

Answer 1

	old estimations		Straight line method
Purchase of asset	45100		45100
Salvage	4600		900
Net asset cost	40500		44200
Life of asset	5		10
Per year depreciation	8100		4420
(net asset cost/life of asset)

Year	Depreciation posted	Revised depreciation
2016	8100	4420
2017	8100	4420
sum	16200	8840
Difference	7360
[16200-8840]

01.01.2018	Accumulated depreciation expense AC DR	7360
	To Depreciation AC CR.		7360
	[being the asset value is increased as per the revised evaluations]
12.31.2018	Depreciation expenses AC DR.	4420
	To Accumulated depreciation AC CR.		4420
	[being depreciation for the year 2018]

sum of digits method, rate of depreciation calculation

Sum of digits	Percentage
9	20
8	18
7	16
6	13
5	11
4	9
3	7
2	4
1	2
45	100

	straight line	sum of digits method
Purchase of asset	45100	45100
Salvage	4600	900
Net asset cost	40500	44200
Life of asset	5	10
Per year depreciation	8100	4420
(net asset cost/life of asset)

Year	Depreciation	Net book value
2016	8,840	35,360
2017	6,286	29,074
depreciation	15,126
posted as per straight line method	16200
difference	(1,074)

Accumulated depreciation expense AC DR	1074
To Depreciation AC CR.		1074
[being the asset value is increased as per the revised evaluations]
Depreciation expenses AC DR.	4,522.59
To Accumulated depreciation AC CR.		4523
[being depreciation for the year 2018, net book value as of 01.01.2018 is 29074, depreciation is calculated as 16%]