Question

Kingbird Enterprises Ltd. purchased machinery on January 1, 2015. The machinery cost $406,000, and was estimated to have a ten-year useful life and a residual value of $59,000. Straight-line depreciation was recorded each year-end (December 31) to the end of December 31, 2019. On January 1, 2020, Kingbird re-evaluated the machinery. It was now believed that the equipment’s total life was expected to be 15 years.

Prepare the journal entry to record depreciation for 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

Answer 1

Depreciation provided for 5 years estimating useful life as 10 years

= [($406,000 - $59,000) / 10] X 5

= $173,500

Depreciation to be provide on the basis of change in useful life. The new useful life is estimate to be 15 years in total. Already 5 years are over. Remaining 10 years.

Value of asset after 5 years depreciation = $406,000 - $173,500 = $232,500

Depreciation = ($232,500 - $59,000) / 10 = $17,350

Journal entry for Depreciation on December 31st, 2020

Account titles and explanation	Debit	Credit
Depreciation expense	$17,350	-
Accumulated depreciation	-	$17,350
(To record depreciation expense)