E8-27. Computing Depreciation and Accounting for a Change of Estimate Lambert Co

Question

E8-27. Computing Depreciation and Accounting for a Change of Estimate Lambert Company acquired machinery costing $110,000 on January 2,2016. At that time, Lambert es- timated that the useful life of the equipment was 6 years and that the residual value would be $15,000 at the end of its useful life.Compute depreciation expense for this asset for 2016,2017,and 2018 using the a. straight-line method. b. double-declining-balance method. c. Assume that on January 2,2018, Lambert revised its estimate of the useful life to 7 years and changed its estimate of the residual value to $10,000. What effect would this have on deprecia tion expense in 2018 for each of the above depreciation methods?

Explanation / Answer

A Cost of asset $110,000 B Residual Value $15,000 C Useful Life in years 6 D=(A-B)/C Annual Straight Line Depreciation $           15,833 a Straight Line Method 2016 2017 2018 Depreciation expense of asset $           15,833 $            15,833 $         15,833 b Double Declining Balance Method Depreciation Rate 0.333333333 (2*(1/6) A B C=A*B D E=A-C Beginning Depreciation Depreciation Ending Ending Year Value Rate Expense Accumulated Depreciation Book Value 2016 $110,000 0.333333333 $36,667 $36,667 $73,333 2017 $73,333 0.333333333 $24,444 $61,111 $48,889 2018 $48,889 0.333333333 $16,296 $77,407 $32,593 2016 2017 2018 Depreciation expense of asset $           36,667 $            24,444 $         16,296 c Straight Line method-Revision A Accumulated depreciation on Jan1, 2018 $           31,667 (15833+15833) B Book Value $78,333 (110000-31667) C Residual Value $10,000 D Useful lifein years as on Jan1, 2018 5 E=(B-C)/D Annual depreciation expense $           13,667 Depreciation expense in 2018 $           13,667 Double Declining Balance Method-Revision A Depreciation Rate 0.285714286 (2*(1/7) B Book Value as on January 1, 2018 $48,889 C=A*B Depreciation Expense in 2018 $13,968

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