Question

Assume that Bloomer Company purchased a new machine on January 1, 2017, for $64,700. The machine has an estimated useful life of nine years and a residual value of $6,470. Bloomer has chosen to use the straight-line method of depreciation. On January 1, 2019, Bloomer discovered that the machine would not be useful beyond December 31, 2022, and estimated its value at that time to be $2,200.

Required:

1. Calculate the depreciation expense, accumulated depreciation, and book value of the asset for each year 2017 to 2022. If necessary, round any depreciation calculations to the nearest dollar.

Year	Depreciation Expense	Accumulated Depreciation	Book Value
2017
2018
2019
2020
2021
2022

2. Depreciation for 2017 and 2018 was not wrong. Bloomer Company made a   correction of error or a change in estimate based on new information or historical information. This requires restating financial statments, correcting the errors, revising depreciation for future recording and the past estimates are considered wrong, correct for the past time periods since the company used the best information available at that time.

Answer 1

Answer-1:

Year	Depreciation expense	Accumulated depreciation	Book value
2017	$                   6,470	$                 6,470	$              58,230
2018	6,470	12,940	51,760
2019	12,390	25,330	39,370
2020	12,390	37,720	26,980
2021	12,390	50,110	14,590
2022	12,390	62,500	2,200

Answer-2:

(i) This is an accounting chages and chages in estimate based on new information. Historical information is not considered.

(ii) This is not a correction error.

(iii) This requires revising depreciation for future recording.

Annual depreciation before the change = ($64,700 - $6,470) ÷ 9 = $6,470

2019 Book value = $64,700 – [(2 x $6,470)] = $51,760

New residual value = $2,200

Remaining life = 4

New depreciation = ($51,760 - $2,200) ÷ 4 = $12,390