Question

Yellow Inc. is recording a $10,000 annual straight line depreciation expense on equipment purchased 3 years ago [January 1, 2016]. The equipment originally costed $200,000. The current [January 1, 2019] book value of the equipment is $170,000. The equipment was estimated to have zero salvage value at the time of purchase. On January 1, 2019 Yellow Inc. decided to reduce the original useful life of the equipment by 25 % and to establish a salvage value of $20,000.

Tax effects are ignored for this problem.

Required:

Prepare the journal entry to record the annual depreciation on December 31, 2019.

Answer 1

Cost	$ 200,000.00
Depreciation per year	$    10,000.00
Estimated life (200000/10000)	20 years
Years passed	3
Years left	17

Original useful life	20 years
Decrease in useful life (20 x 25%)	5 years
New estimeted useful life	15 years

Straight line Method
A	Cost	$       170,000.00
B	Residual Value	$          20,000.00
C=A - B	Depreciable base	$       150,000.00
D	Life [in years left (15-3)]	12
E=C/D	Annual SLM depreciation	$          12,500.00

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
2019	$            170,000.00	$          12,500.00	$ 157,500.00	$     12,500.00

Date	Accounts title	Debit	Credit
Dec 31 2019	Depreciation expense-Building	$      12,500.00
	Accumulated Depreciation - Building		$    12,500.00
	(depreciation expense recorded)