Question

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Wardell Company purchased a mainframe on January 1, 2019, at a cost of $40,000. The computer was depreciated using the straight-line method over an estimated five-year life with an estimated residual value of $4,000. 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 $900.

2. Prepare the year-end journal entry for depreciation in 2021. Assume 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. Round your final answers to nearest whole dollar.)

I would appreciate if you showed the calculations.

Answer 1

Answer:

General Journal	Debit	Credit
Depreciation Expense	3,889
Accumulated Depreciation		3,889
To record depreciation

Calculation

Cost = 31,500

Here, we need to calculate the Previous Depreciation first. That is for both 2019 and 2020.

Previous Depreciation:

2019:

Cost - Residual value / Life =

= 40,000 - 4,000 = 36,000

Then, 36,000/15 years  = 2,400

2,400 * 5 years = 12,000

Depreciation of 2019 = 12,000

2020:

= 40,000 - 4,000 = 36,000

Then, 36,000/15 years = 36,000 /15 = 2,400

2,400 * 4 years = 9,600

Depreciation of 2020 = 9,600

Depreciation to Date (2019 + 2020 ) = (12,000+ 9,600) = 21,600

Now we need to calculate for 2021:

Book Value = 40,000 - 21,600 = 18,400

Revised Residual Value = - 900

Revised Depreciable Base = 18,400 - 900 = 17,500

Estimated Remaining Life = (10 yrs. – 2 yrs. Used) = 8

Sum of year digit = 8+7+6+5+4+3+2+1 = 36

So to calculate the new depreciation:

New Annual Depreciation = 17,500 *(8/36) = 3,889