Question 30 In January 2017, installation costs of $6,500 on new machinery were charged to Maintenance...
Question 30
In January 2017, installation costs of $6,500 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of $32,500 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no salvage value. At December 31, 2018, it is decided that the machinery has a remaining useful life of 20 years, starting with January 1, 2018. What entries should be made in 2018 to correctly record transactions related to machinery, assuming the machinery has no salvage value? The books have not been closed for 2018 and depreciation expense has not yet been recorded for 2018. (Credit account titles are automatically indented when the 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.)
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Date |
Account Titles and Explanation |
Debit |
Credit |
|
Dec. 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(To correct for the error of expensing installation costs on machinery acquired in January, 2017) |
|||
|
|
|
|
|
|
|
|
|
|
|
(To record depreciation on machinery for 2018 based on a 20-year useful life) |
Homework Answers
The expenses of previous year can be adjusted only through Retained earnings. Therefore, Machinery account is debited and Retained earnings is credited.
Regarding to the change in estimated life, we can apply the change in estimate prospectively. Therefore, we have to calculate depreciation based on 20 years life on the carrying amount of the asset.
Opening balance of the asset = $32,500 - $3,250 = $29,250
When we add the rectification amount the value of machinery = $29,250 + $6,500 = $35,750
Therefore, depreciation is calculated on $35,750 for a life of 20 years.
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Question 30
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decided that the machinery has a remaining useful life of 20 years,
starting with January 1, 2018. What entries should be made in 2018
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