Question

(9 points) Z Company is recording annual straight-line depreciation expense of $10,000 on a building purchased three years ago (January 1, 2015). The original cost of the equipment was $200,000 and the current book value (January 1, 2018) is $170,000. At the time of purchase, the asset was estimated to have a zero salvage value. On January 1, 2018, the company decided to reduce the original useful life by 25% and to establish a salvage value of $20,000. Ignore tax effects. Required: Prepare the journal entry to record the annual depreciation on December 31, 2018.

Answer 1

Calculation of Revised amount of Depreciation:-

Current book value= 170,000 $

Revised original life= 20 - (20*25%)= 15 years

Remaining useful life on January 1, 2018= 15-3= 12 years

Revised depreciation= (170,000 - 20,000) * 1/12= 12,500

Journal Entry:-

Depreciation Expense a/c Dr. 12,500

To, Accumulated Depreciation a/c 12,500