Question

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Trainex Corporation purchased equipment on January 1, 2020 at a cost of $500,000. The equipment has...

Trainex Corporation purchased equipment on January 1, 2020 at a cost of $500,000. The equipment has an estimated residual value of $50,000 and an estimated life of 5 years. At the end of two years, Trainex reevaluated the useful life of the equipment. Management extended the total useful life an additional 5 years but estimated that the equipment would have no residual value at the end of this time. If the company uses straight-line depreciation, what amount (in whole dollars) would be recorded as depreciation expense 1) for 2020 , 2) for 2021 , and 3) for 2022 ? The journal entries to record depreciation in each of the years would include a debit to (what account?) and a credit to .

Expert Solution

1&2) cost of the equipment on january 2020 is $500000

residual value of equipment is $50000.(residual value is the value of asset after its useful life)

useful life is 5 years

depreciation for a year = cost/ carrying value - residual value/5 years

depreciation for a year =$500000-$5000/5 years=$90000

first two years depreciation is not changing as useful life is not changing

depreciation for 2020=$90000

depreciation for 2021=$90000

journal entry for depreciation is same in both years

2020 debit depreciation $90000

credit accumulated depreciation $90000

2021

debit depreciation $90000

credit accumulated depreciation $90000

3) carrying value on january 2023 is $500000-$90000-$90000=$320000( cost - 2 year accumulated depreciation)

from year 3 onwards there is no depreciation and having an additional five year useful life

so new useful life =8 years(5years-2 years+5 years)

depreciation for the year= carrying value - residual value/ revised useful life.

=$390000-$0/8 years =$48750

depreciation for 2022 is $48750

journal entry for 2022 depreciation

debit depreciation $48750

credit accumulated depreciation $48750.

note: for any year we expense depreciation into p&l and accumulated depreciation is deducted from cost of the asset in balancesheet.

journal entry is

debit depreciation a/c

credit accumulated depreciation a/c

ekkarill92 answered 2 years ago

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