In January 2017, installation costs of $6,000 on new machinery were charged to M
ID: 2552380 • Letter: I
Question
In January 2017, installation costs of $6,000 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of $30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no salvage value. At December 31, 2018, it is decided that the machinery has a remaining useful life of 20 years, starting with January 1, 2018. What entries should be made in 2018 to correctly record transactions related to machinery, assuming the machinery has no salvage value? The books have not been closed for 2018 and depreciation expense has not yet been recorded for 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31
(To correct for the error of expensing installation costs on machinery acquired in January, 2017)
(To record depreciation on machinery for 2018 based on a 20-year useful life)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31
(To correct for the error of expensing installation costs on machinery acquired in January, 2017)
(To record depreciation on machinery for 2018 based on a 20-year useful life)
Explanation / Answer
Journal Entries Date Accounts title and explanations Debit $ Credit $ 31-Dec Machinery Equipment Dr. 4800 Retained earnings 4800 31-Dec Depreciation expense-mach equip Dr. 1440 Accumulated depreciation 14400 Note: Installation charges of $6000 not recorded in machinery shall be added back after giving effect of 2 years of depreciation. Hence, cost to be added is $6000-2*600 = $ 4800. Also, income would have been increased by the same amount in two prior years. Note: Annual depreciation: Book value of machinery (30000-2*3000) 24,000 Add: Installation charges added 4,800 Total book value 28800 Divide: Estimated life 20 Annual depreciation 1,440
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