Overwriters Labs, inc. purchased a building for $ 300, 000 which was originally

Question

Overwriters Labs, inc. purchased a building for $ 300, 000 which was originally estimated to have a useful life of 15 years and salvage value of $30,000. Depreciation has been recorded for 5 years on a straight-line basis. On January 1, 2015, the estimate of the useful life is revised so that the asset is considered to have a total life of 25 years and a revised salvage value of $20,000 Prepare the entry (if any) to correct the prior years' depreciation (if no entry write "no entry required") prepare the entry to record depreciation for 2015 Do previous year's financial statements need to be restated because of this yes no

Explanation / Answer

(300,000 – 30,000)/5 = 18,000

For five years depreciation charged was 18000*5 = 90,000

Book value 300,000 – 90,000 = 210,000

Depreciation now

= (210,000 – 20,000)/(25-5)

= 9,500

Entry

Depreciation

$9,500

To Accumulated depreciation

$9,500

1. No entry required
2. Calculation of depreciation

(300,000 – 30,000)/5 = 18,000

For five years depreciation charged was 18000*5 = 90,000

Book value 300,000 – 90,000 = 210,000

Depreciation now

= (210,000 – 20,000)/(25-5)

= 9,500

Entry

Depreciation

$9,500

To Accumulated depreciation

$9,500

1. No

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