Question

Wardell Company purchased a minicomputer on January 1, 2016, at a cost of $49,000. The computer was depreciated using the straight-line method over an estimated five-year life with an estimated residual value of $7,000. On January 1, 2018, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $400.

Required:
1. Prepare the year-end journal entry for depreciation in 2018. No depreciation was recorded during the year.
2. Prepare the year-end journal entry for depreciation in 2018. Assume that the company uses the sum-of-the-years' -digits method instead of the straight-line method.

Answer 1

	CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD
	Purchase Cost of Mini Computer	$                      49,000
	Less: Residual Value	$                        7,000
	Value for the depreciaiton	$                      42,000
	Divide by useful life =	"/" 5 Years
	Depreciation per year ($ 42,000 / 5 Years)	$                        8,400
	CACLULATION OF THE BOOK VALUE AS ON JANUARY 01, 2018 AND DEPRECIATION AS PER SLM
	Purchase Price =	$                      49,000
	Less: Depreciation for the year 2016	$                        8,400
	Less: Depreciation for the year 2017	$                        8,400
	Book Value at the year end december 31, 2017=	$                      32,200
	Opening balance as on Jan, 01 2018 =	$                      32,200
	Less: Salvage Value =	$                            400
	Value for the depreciation	$                      31,800
	Balance life of the assets (10 Years - 2 Years)	8 years
	Depreciation Per year ($ 31,800 / 8 Years )	$                        3,975
	So depreciation for the year 2018 as per Striaght Line method =	$                        3,975
	CALCULATION OF THE DEPRECIATION AS PER SUM OF DIGIT METHODS
	Opening balance as on Jan, 01 2018 =	$                      32,200
	Less: Salvage Value =	$                            400
	Value for the depreciation	$                      31,800
	Sum of Years Digit = 1+ 2 + 3 + 4 +5 + 6+ 7 + 8 = 36
	So, Depreciation for the year 2018 = $ 31,800 X 8 / 36 =	$                  7,066.67
Journal Entries
Date	Account Title and explanation	Debit	Credit
	Answer = 1)
2018	Depreciation Expenses	$                        3,975
	To Accumulated Depreciation - Microcomputer		$                       3,975
	Answer = 2)
2018	Depreciation Expenses	$                  7,066.67
	To Accumulated Depreciation - Microcomputer		$                 7,066.67