11. On January 1, 2010 Madison Co. purchased a vehicle for $55,000 cash. The useful life...
11. On January 1, 2010 Madison Co. purchased a vehicle for $55,000 cash. The useful life is expected to be 5 years with an estimated salvage value of $5000. At the end of year 3, Madison decided to increase the useful life to 7 years (in total) and reduce the salvage value to $3000.
- Journalize the purchase
- Journalize the first year’s depreciation
- What is the annual depreciation beginning in year 4?
structions: Journalize each transaction below. Prepare all necessary schedules.
Homework Answers
Journal entries for Purchase:
Vehicle Account ........ Debit $55000
Cash Account ...... Credit $55000
Journal entries for first year Depreciation:
Depreciation Expense Account ....... Debit $10000
Accumulated Depreciation ........ Credit $10000
Annual Depreciation at the end of year 3 or beginning of year 4:
Book Value = $55000 - $20000 = $35000
Revise salvage value = $3000
Revise use full life = 7 years - 3 years already used = 4 years
Depreciation expense = ($35000 - $3000) / 4 = $8000
Workings:
Cost of Vehicle = $55000
Useful life = 5 years
salvage value = $5000
Depreciation expense = (Cost of vehicle - salvage vale) / useful life
= ($55000 - $5000) / 5 = $10000
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