Question

Bebtley Co. purchased equipment on January 1, 2017, at a cost of $45,000. Depreciation for 2017 and 2018 was based on an estimated eight-year life and $3,000 estimated residual value. The company uses the straight-line method of depreciation and records any partial-year depreciation based on the number of months the asset is in service.

In 2019, Bentley Co. revised its depreciation estimate and now believes the equipment will have a total service life of six years & a residual value of $2,000.

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Required:

Prepare the journal entry to record the 2019 depreciation.

Answer 1

For year 2017 and 2018:

Cost of machiney = $45,000

Salvage Value = $3000

Estimated life = 8 years

Depreciation per year = (Cost of Machinery - Salvage Value) / Estimated Life

= (45000 - 3000) / 8

= 42000 / 8

= $5,250

Depriciation charged during 2017 and 2018 = $5,250 X 2 = $10,500

During 2019:

Cost of machinery = $45,000

Salvage Value = $2,000

Estimated Life = 6 years

Revised Depreciation per year = (Cost of Machinery - Salvage Value) / Estimated Life

= (45000 - 2000) / 6

= 43000 / 6

= $7,166.67 per year

Since, the company will not make adjustments to the prior years, hence the revised depreciation cost would be booked during 2019.

Cost that should have been booked during 2017 and 2018 = Revised Depreciation per year X 2 =  $7,166.67 X 2 = $14,333.33

Cost that have been booked = $10,500

Cost that is required to be booked for 2017 and 2018 = Cost that should have been booked during 2017 and 2018 - Cost that have been booked

= $14,333.33 - $10,500

= $3,833.33

Further, the cost of depreciation for 2019 = $7,166.67

Total cost of depreciation to be booked in 2019 = Cost that is required to be booked for 2017 and 2018 + cost of depreciation for 2019

= $3,833.33 + $7,166.67

= $11,000

Entry for depreciation cost for 2019:

Depreciation A/c Dr. $11,000

To Accumulated Depreciation $11,000

(Being depreciation charged and transferred to Accumulated Depreciation A/c)