Headland Corp. purchased machinery on January 1, 2016 for $462,000. Straight-line depreciation is used. At the...

Headland Corp. purchased machinery on January 1, 2016 for $462,000. Straight-line depreciation is used. At the time management estimated that the machinery would be used over 10 years and would have a residual value of $41,000. It is now December 31, 2020 and management has determined that the machine’s life is now a total of 12 years with no residual value. No adjusting journal entries have been recorded yet for the 2020 year-end.

What journal entries are required to record the above events on December 31, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

Solutions

Expert Solution

Journal Entry

Date. Account Title. Debit. Credit 31 Dec 2020. Depreciation $36,700

Machinery. $36,700

Explanation :

Depreciation = ( cost of asset - residual value ) ÷ useful life of asset

Depreciation = ( $462,000 - $41,000 ) ÷ 10

= $421,000 ÷ 10

Depreciation per year = $42100

Depreciation from 1 Jan 2016 to 31 December 2019 = depreciation per year × No of years

Depreciation for 4 years = $42100×4

Depreciation for 4 years =$168,400

Book value of asset on 01 January 2020 is = $462,000 - depreciation till date

Book value = $462,000 - $168,400

Book value on 31 December 2019 = $293,600

On 31 December 2020 , the management has that determined the machines useful life is now 12 years.

Therefore depreciation for the year ended 31 December 2020 is as follows

As salvage value is NILL therefore, the whole amount of remaining carrying amount is now depreciable value over the remaining useful life of 8 years.

Depreciation = Book value ÷ remaining useful life

Depreciation = $293,600 ÷ 8

Depreciation for the year ended 31 December 2020 = $36,700

ekkarill92 answered 1 year ago

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