(Supplement) Analyzing and Recording Entries Related to a Change in Estimated Life and Residual Value
Rungano Corporation is a global publisher of magazines, books, and music and video collections and is a leading direct mail marketer. Many direct mail marketers use high-speed Didde press equipment to print their advertisements. These presses can cost more than $1 million. Assume that Rungano owns a Didde press acquired at an original cost of $400,000. It is being depreciated on a straight-line basis over a 20-year estimated useful life and has a $50,000 estimated residual value. At the end of 2010, the press had been depreciated for a full six years. In January 2011, a decision was made, on the basis of improved maintenance procedures, that a total estimated useful life of 25 years and a residual value of $73,000 would be more realistic. The accounting period ends December 31.
Required:
1. Compute (a) the amount of depreciation expense recorded in 2010 and (b) the book value of the printing press at the end of 2010.
2. Compute the amount of depreciation that should be recorded in 2011. Show computations (round amount to the nearest dollar).
3. Give the adjusting entry for depreciation at December 31, 2011.
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