Danny Venable, the new controller of Seratelli Company, has reviewed the expecte

Question

Danny Venable, the new controller of Seratelli Company, has reviewed the expected useful lives and salvage values of selected depreciable assets at the beginning of 2014. Here are his findings: All assets are depreciated by the straight-line method. Seratelli Company uses a calendar year in preparing annual financial statements. After discussion, management has agreed to accept Danny's proposed changes. (The "Proposed" useful life is total life, not remaining life.) Compute the revised annual depreciation on each asset in 2014. Prepare the entry (or entries) to record depreciation on the building in 2014.

Explanation / Answer

If the estimation of assets have changed then the change will affect in the current and future years. Therefore the depreciation of Building and warehouse will be calculated by taking the book value and proposed scrap value and proposed remaining useful life. Building=(Book value as on 1/1/2014 less accumulated depreciation)/remaining estimated useful life Building Cost $                  700,000 Less: Accumulated Depreciation $               (130,000) Book value as on 1st Jan. 2014 $                  570,000 Proposed total life of building 48 years Less: Life till 1/1/2014 8 year Remaining useful life 40 years Depreciation for the year 2014=($570,000-$35,000)/40years                                                                '=$13,375 Calculation of depreciation of Warehouse for the year 2014 is calculated as under: Cost $                  120,000 Less: Accumulated Depreciation $                  (23,000) Book value as on 1st Jan. 2014 $                    97,000 Proposed total life of building 20 years Less: Life till 1/1/2014 5 year Remaining useful life 15 years Depreciation for the year 2014=($97,000-$3,600)/15years                                                                '=$6,227 The depreciation for the year 2014 for Building and Warehouse is $13,375 and $6,227 respectively The journal entry for recording depreciation expense for the year 2014 is as under: Depreciation expense $19,605 Accumulated Depreciation $19,605 (Being depreciation expense recorded for the year)

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