Question

1. Equipment was purchased at the beginning of Year 1 for $680,000. At the time of its purchase, the equipment was estimated to have a useful life of 6 years and a salvage value of $80,000. The equipment was depreciated using the straight-line method through Year 3. At the beginning of year 4, the estimated life was revised to a total life of 8 years and the expected salvage value was changed to $50,000. Prepare the journal entry to record Year 4 depreciation:

Answer 1

Cost in whole in Year 1	$   680,000
Less: Salvage value	$     80,000
Depreciable value	$   600,000
Depreciation per year ($600,000/6)	$   100,000
Depreciation for 3 full years ($100,000*3)	$   300,000
Book value at the end of 3rd year ($680,000-$300,000)	$   380,000
New useful life	8
Remaining number of years (8-3)	5
Revised salvage value	$     50,000
New depreciable value ($380,000-$50,000)	$   330,000
New depreciation per year ($330,000/5)	$     66,000

Journal entry will be

Debit depreciation expenses	66,000
Credit Accumulated depreciation		66,000

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