In: Accounting
Yi Tech Inc. purchased a piece of equipment on 1/1/2016 for $20,000. At the time of purchase the accountant estimated its useful life at 10 years and a salvage value of $1,000. The company uses straight-line depreciation. On 1/1/18, the accountant changed the estimates. He decided a 5-year useful life with a $2,000 salvage value is more appropriate.
Note: This is considered a change in accounting estimate and will be reflected in the year the change was made in earnings (current year).
record the following journal entries recording Year-end Depreciation expense.
12-31-16 Dr._________________________________________
Cr._________________________________________
12-31-17 Dr. _________________________________________
Cr.__________________________________________
12-31-18 Dr. __________________________________________
Cr.___________________________________________
12-31-19 Dr. ___________________________________________
Cr.____________________________________________
12-31-20 Dr. ____________________________________________
Cr.______________________________________________
the following are the required journal entries:
date | accounts | debit | credit |
12-31-16 | Depreciation expense a/c | $1,900 | |
...........To Accumulated depreciation a/c | $1,900 | ||
12-31-17 | depreciation expense a/c | $1,900 | |
............To Accumulated depreciation a/c | $1,900 | ||
12-31-18 | Depreciation expense a/c | $4,733.33 | |
............To Accumulated depreciation a/c | $4,733.33 | ||
12-31-19 | Depreciation expense a/c | $4,733,33 | |
.............To Accumulated depreciation |
$4,733.33 |
||
$ | |||
12-31-20 | Depreciation a/c | $4,733.33 | |
. | ............TO Accumulated depreciation a/c | $4,733.33 |
working note:
depreciation in year 1 and year 2:
(cost - salvage value) / life
=> (20,000 - 1,000) / 10 years
=>$1,900.
now,
accumulated depreciation in years 1 and 2 =>$3,800.
now,
book value at end of year 2= $20,000 - 3,800
=>$16,200.
now,
depreciation for year 3 4 and 5
=>(book value - revised salvage value) / remaining years
=>(16,200 - 2,000) / 3
=>14,200 / 3
=>$4,733.33