Question

Osbourne Company purchased Equipment on January 1, 2015 at a cost of S110,000. The original Estimated Useful (Service) Life of the Equipment was twenty (20) years and the original Estimated Salvage (Residual) Value was $10,000. On January 1, 2019, Osboume Company revised the total Estimated Useful (Service) Life (from the beginning) of the Equipment to ten (10) years and the Estimated Salvage (Residual) Value to S-0- (zero). Osbourne Company uses the Straight-Line Method to depreciate the Equipment REQUIRED In the space provided below Compute the Depreciation Expense for the year of 2019. (a) Make the Journal Entry as of December 31, 2019 to record the Depreciation Expense for the year of 2019. (Do not give explanation for the Journal Entry) (b)

Answer 1

a.

Cost of equipment = $110,000

Residual value = $10,000

Useful life = 20 years

Annual depreciation = ( Cost price - Residual value)/Useful life

=( 110,000-10,000)/20

= $5,000

Accumulated depreciation for 4 years = 5,000 x 4

= $20,000

Book value of equipment on January 1, 2019 = Cost price - Accumulated depreciation

= 110,000-20,000

= $90,000

Revised residual value = $0

Revised depreciation cost = Book value of equipment on January 1, 2019 - Revised residual value

= 90,000-0

= $90,000

Revised annual depreciation = Revised depreciable cost / Remaining useful life

= 90,000/6

= $15,000

Depreciation expense for 2019 = $15,000

b.

Date	General Journal	Debit	Credit
December 31, 2019	Depreciation expense	$15,000
	Accumulated depreciation - equipment		$15,000

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