Question

Question 4 /1 View Policies Current Attempt in Progress Machinery purchased for $70,200 by Sheffield Co. in 2016 was originally estimated to have a life of 8 years with a salvage value of $4,680 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2021, it is determined that the total estimated life should be 10 years with a salvage value of $5,265 at the end of that time. Assume straight-line depreciation (a) Prepare the entry to correct the prior years depreciation, If necessary (If no entry is required, select "No entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Credit Debit Account Titles and Explanation eTextbook and Media

Answer 1

Revision of salvage value and estimated useful life : If there is a change in the estimate of salvage value or estimated useful life then the effect of such revision in estimates is be considered prospectively i.e. the change in depreciation Expense is be recorded in the year in which depreciation changes and subsequent accounting periods.

Revised Deprecation Expense = (Cost - Revised Salvage Value - Accumulated Depreciation)/ Revised Remaining Useful life

Step 1 Straight Line Depreciation = (Cost-salvage value)/useful life Straight Line Depreciation = ($70200-$4680)/8 Straight Line Depreciation = $8190 Step 2 Cost $70,200 Less: Depreciation for 2016 ($8,190) Less: Depreciation for 2017 ($8,190) Less: Depreciation for 2018 ($8,190) Less: Depreciation for 2019 ($8,190) Less: Depreciation for 2020 ($8,190) Book Value at the end of 2020 $29,250 Step 3 Book Value at the end of 2020 Less: Revised Salvage Value Remaining Cost be depreciated Year of life remaining (10-5] Depreciation for current year ($23985/5] $29,250 ($5,265) $23,985 $4,797 Credit Debit $4,797 Ans Date General Journal Dec 31, 2021 Depreciation - Machinery Accumulated Depreciation - Machinery (To Record Depreciation for current year) $4,797