Question

Wardell Company purchased a mainframe on January 1, 2016, at a cost of $58,000. The computer was depreciated using the straight- line method over an estimated five-year life with an estimated residual value of $16,000. On January 1, 2018, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $2,200. Required: 1. Prepare the year-end journal entry for depreciation in 2018. No depreciation was recorded during the year. 2. Prepare the year-end journal entry for depreciation in 2018. Assume that the company uses the sum-of-the-years' -digits method instead of the straight-line method. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the year-end journal entry for depreciation in 2018. No depreciation was recorded during the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record depreciation expense. Note: Enter debits before credits. Event General Journal Debit Credit

Answer 1

1) Credit Debit $4,875 Account Titles and explanations Depreciation Expenses Accumulated Depreciation (To record depreciation expense) $4.875 Workings: Calculation of depreciation expenses using Straight-line method: Dpreciation expense = ($58,000 - $16.000) / 5 years = $8.400 per year Book value in 2018 = [558,000 - (2 years * $8,4001 = $41,200 New residual value = $2,200 Remaining useful life in 2018 = 10 years - 2 years = 8 years Dpreciation expense in 2018 = ($41,200 - $2,200) / 8 years $4,875 2) Account Titles and explanations Depreciation Expenses Accumulated Depreciation (To record depreciation expense) Debit Credit $6.800 $6.800 Workings: Calculation of depreciation expenses using Sum-of-the-year's-digits method: Sum-of-the-years'- digits method = (Cost - residual value) * (Declining years / Sum of the years) Sum of the year = [n* (n + 1)] /2 = [5* (5+1)] /2 15 Dpreciation expense in 2016 = ($58,000 - $16.000) * (5 / 15) = $14,000 Dpreciation expense in 2017 = ($58,000 - $16,000) * (4/15) = $11,200 Book value in 2018 = [$58.000 - ($14,000+ $11.200)] = $32,800 Remaining useful life in 2018 = 10 years - 2 years = 8 years Sum of the year = [n* (n + 1)] /2 = [8 * (8 + 1)] /2 36 Dpreciation expense in 2018 = ($32.800 - $2,200) * (8/36) $6,800