Question

Blossom Co. purchased equipment for $600,400 which was estimated to have a useful life of 10 years with a salvage value of $8,400 at the end of that time. Depreciation has been entered for 7 years on a straight-line basis. In 2018, it is determined that the total estimated life should be 15 years with a salvage value of $4,600 at the end of that time.

(a)		Prepare the entry (if any) to correct the prior years’ depreciation.
(b)		Prepare the entry to record depreciation for 2018.

(Credit account titles are automatically indented when 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.)

Answer 1

a
Account titles and explanation	Debit	Credit
No Entry	0
No Entry		0
b
Account titles and explanation	Debit	Credit
Depreciation expense	22675
Accumulated Depreciation-Equipment		22675
Workings:
Cost	600400
Less: Salvage value	8400
Depreciable cost	592000
Divide by Useful life	10
Annual depreciation	59200
Accumulated depreciation	414400	=59200*7
Book value	186000	=600400-414400
Less: Salvage value	4600
Remaining Depreciable cost	181400
Divide by remaining Useful life	8	=15-7
Annual depreciation	22675