Question

Kano International Publishing, headquartered in Berlin, Germany, is a leading global publisher of scientific, technical, and medical journals and books for researchers in academia, scientific institutions, and corporate R&D departments. For print publications, assume that Kano owns a Didde press (now manufactured by Graphic Systems Services) that was acquired at an original cost of $330,000. It is being depreciated on a straight-line basis over a 20-year estimated useful life and has a $43,000 estimated residual value. At the end of the prior year, the press had been depreciated for a full five years. At the beginning of January of the current year, a decision was made, on the basis of improved maintenance procedures, that a total estimated useful life of 25 years and a residual value of $83,000 would be more realistic. The accounting period ends December 31.

Required:

1-a. Compute the amount of depreciation expense recorded in the prior year.

1-b. Compute the book value of the printing press at the end of the prior year.

2. Compute the amount of depreciation that should be recorded in the current year.

3. Prepare the adjusting entry for depreciation at December 31 of the current year.

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 recoded in the year in which depreciation changes and subsequent accounting periods Revised Deprecation Expense = (Cost - Revised Salvage Value - Accumulated Depreciation)/ Revised Remaining Useful life Straight Line Depreciation = (Cost - salvage value)/useful life Straight Line Depreciation = ($330000-$43000)/20 Straight Line Depreciation = $14350 Ans 1 a Depreciation for prior year is $14350 Ans 1 b Cost Less: Depreciation for 1st year Less: Depreciation for 2nd year Less: Depreciation for 3rd year Less: Depreciation for 4th year Less: Depreciation for 5th year Book Value at the end of prior year $3,30,000 ($14,350) ($14,350) ($14,350) ($14,350) ($14,350) $2,58,250 Ans 2 Book Value at the end of prior year Less: Revised Salvage Value Remaining Cost be depreciated Year of life remaining [25-4] Depreciation for current year ($175250/21] $2,58,250 ($83,000) $1,75,250 21 $8,345 Credit Ans 3 Date Dec 31, Debit $8,345 General Journal Depreciation - Machinery Accumulated Depreciation - Machinery (To Record Depreciation for current year) $8,345