Question

Required information [The following information applies to the questions displayed below. Wardell Company purchased a mainframe on January 1, 2019, at a cost of $54,000. The computer was depreciated using the straight-line method over an estimated five-year life with an estimated residual value of $6,000. On January 1, 2021, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $3,600. 2. Prepare the year-end journal entry for depreciation in 2021. Assume that the company uses the sum-of-the-years' - digits method instead of the straight-line method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to nearest whole dollar.) No Event Credit Answer is complete but not entirely correct. General Journal Debit Depreciation expense 6,933x Accumulated depreciation—computer 1 1 6,933 X

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Answer 1

Answer:

2. The year end depreciation for 2021 is,

No Event General Journal Debit Credit 1 1 4,800 Depreciation expense Accumulated depreciation - Computer 4,800

Explanation:

Calculation of depreciation using sum of the years' digits method:

Depreciation = (Original Cost - Residual value) × Declining years / Sum of years

Original cost = $54,000
Residual value = $6,000
Sum of years = 5 + 4 + 3 + 2 + 1 = 15

Substitute the values in the above formula:

Depreciation expense for 2019 = ($54,000 - $6,000) × 5 / 15 = $16,000

Depreciation expense for 2020 = ($54,000 - $6,000) × 4 / 15 = $12,800

Accumulated depreciation on January 1, 2021 = $16,000 + $12,800 = $28,800

Book value on January 1, 2021 = Original Cost – Accumulated depreciation
= $54,000 – $28,800 = $25,200

New estimated total useful life = 10 years
Years already completed = 2 years

Therefore, useful life from 2021 = 8 years (10 – 2)

Sum of years = 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 36

New residual value = $3,600

Depreciation expense for 2021 = ($25,200 – $3,600) * 8/36
= $4,800