Question

On July 1, 2019, Cullumber Company purchased new equipment for $85,000. Its estimated useful life was 5 years with a $12,000 salvage value. On January 1, 2022, before making its depreciation entry for 2022, the company estimated the remaining useful life to be 10 years beyond December 31, 2022. The new salvage value is estimated to be $5,000.

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

B.) Prepare the journal entry to record depreciation on December 31, 2020.

C.) Compute the revised annual depreciation on December 31, 2022.

D.) Prepare the journal entry to record depreciation on December 31, 2022.

E.) Compute the balance in Accumulated Depreciation—Equipment for this equipment after depreciation expense has been recorded on December 31, 2022.

Answer 1

A)Depreciation expense =[Cost -salvage value ]/useful life

                             = [85000 -12000]/5

                              = 73000 /5

                               = 14600

DATE	ACCOUNT TITLE	DEBIT	CREDIT
31 DECEMBER 2019	Depreciation expense	7300
	Accumulated depreciation -equipment		7300
	[Being depreciation recorded for 6 months (1July -31Dec) 14600*6/12 ]

B)

DATE	ACCOUNT TITLE	DEBIT	CREDIT
31 DECEMBER 2020	Depreciation expense	14600
	Accumulated depreciation -equipment		14600

C)

	Depreciation expense	Value
Cost		85000
2019	7300
2020	14600
2021	14600
Total depreciation expense		(36500)
Book value		48500

Revised depreciation = [Book value - revised salvage value ]/revised remaining useful life

                      = [48500 -5000 ]/10

                      = 43500/10

                     = $ 4350

D)

DATE	ACCOUNT TITLE	DEBIT	CREDIT
31 DECEMBER 2022	Depreciation expense	4350
	Accumulated depreciation -equipment		4350

E)

	Depreciation expense
Cost
2019	7300
2020	14600
2021	14600
2022	4350
Total accumulated depreciation -Dec 31 ,2022	40850