Question

Wardell Company purchased a mini computer on January 1, 2019, at a cost of $43,400. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $4,400. On January 1, 2021, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $600.

1. Prepare the appropriate adjusting entry for depreciation in 2021 to reflect the revised estimate. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Prepare the appropriate adjusting entry for depreciation in 2021 to reflect the revised estimate, assuming that the company uses the sum-of-the-years'-digits method instead of the straight-line method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations and round your final answers to nearest whole dollar.)

Answer 1

Year 2019
	Date of Purchase		01-Jan-19
	Acquasition Cost		$ 43,400.00
	Usefull Life		5 years
	residual Value		$   4,400.00
	Calculation of depreciation for 2019
	Formulae	=	Asset Value-Residual Value
			useful years
		=	43400-4400
			5
	Depreciation-2019	=	$   7,800.00
	Depreciation-2020		$   7,800.00
	Ending Asset Value 2020	$ 43,400.00
	Accu. Depn-2020		$ 15,600.00	A
	Net Book Value-2020	$ 27,800.00
Year 2020
Question 1
Change in Useful life & Residual value
	Beg Bal-Net book value	$ 27,800.00
	Usefull Life		10 years
	residual Value		$      600.00
	Calculation of depreciation for 2021
		=	27800-600
			10
	Depreciation-2021	=	$   2,720.00	B
	Ending Asset Value 2021	$ 43,400.00
	Accu. Depn-2021		$ 18,320.00	C
	Net Book Value-2021	$ 25,080.00
	As per US GAAP, incase there is change in estimate of usefull life , impact must recognise prospectively in current year income statement
Question 2
Change to sum of years method from Straight line method
	Beg Bal-Net book value	$ 27,800.00
	Usefull Life		10 years
	residual Value		$      600.00
	Calculation of depreciation for 2021
		=	(27800-600)*10
			55	It is sum up of all years
	Depreciation-2021	=	4,945.45	B
	Ending Asset Value 2021	$ 43,400.00
	Accu. Depn-2021		$ 20,545.45	C
	Net Book Value-2021	$ 22,854.55
	As per US GAAP, incase there is change of depreciation method from Straight line method to Sum of years method, it is consider as change in estimate and all the impact recognised prospectively in current year income statement