In January 2017, installation costs of $6,000 on new machinery were charged to M
ID: 2553306 • 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
Installation costs of $ 6,000 was to be capitalised in 2017 instead of charging as expense. Based on initial estimation of 10 years life.depreciation expenses on above mentioned costs will be $ 600 ($ 6,000/10). But, whole of amount is expensed in 2017 .It means $ 5,400 extra amount is expensed. So such extra revenue expenses will be adjusted by debiting Machinery and crediting Maintenance and repair expense. Date Account titles and explanations Debit Credit Dec 31, 2018 Machinery $ 5,400 Maintenance and Repairs Expenses $ 5,400 (To correct for the error of expensing installation costs on machinery acquired in January, 2017) Depreciation Expenes $ 1,620 Accumulated Depreciation-Machinery $ 1,620 (To record depreciation on machinery for 2018 based on a 20-year useful life) Working: Costs at the Beginning of 2018 (30000-(30000/10))+5400 $ 32,400 Revised useful Life in Years 20 Yearly revised depreciation expenses (32400/20) $ 1,620
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