Question

Joe’s Dry Dock Co. purchased equipment on January 1, 2015, at a cost of $650,000. The equipment was estimated to have a 12-year life with a residual value of $50,000. Fisher uses straight-line depreciation. At the beginning of 2020, Joe’s revised its total estimated life to total 10 years, with no residual value. Required:

Prepare journal entries to record Joe's depreciation expense for both 2019 and 2020.

Answer 1

• Working

A	Original cost	$                  650,000
B	Original salvage value	$                     50,000
C = A - B	Original depreciable base	$                  600,000
D	Original expected life [years]	12
E = C/D	Annual 12 month depreciation	$                     50,000
F = E x 5 years	Total Accumulated Depreciation till estimates changed from 2015 to 2019 – 5 years	$                       250,000
G = A - F	Book Value at the time of change of estimate	$                  400,000
H	New salvage value	$                              -
I = G - H	New depreciable base	$                  400,000
J	New expected life [years]	10
K	Life already expired	5
L = J - K	Remaining life	5
M = I/L	Revised depreciation expense from 2020	$                     80,000

• Journal entries

Year	Accounts title	Debit	Credit
2019	Depreciation expense - Equipment	$            50,000
	Accumulated Depreciation - Equipment		$                        50,000
	(to record 2019 depreciation)
2020	Depreciation expense - Equipment	$            80,000
	Accumulated Depreciation - Equipment		$                        80,000
	(to record 2020 revised depreciation)