On January 1, 2016, the Mills Car Repair Company acquired equipment at a cost of

Question

On January 1, 2016, the Mills Car Repair Company acquired equipment at a cost of $55,000. At that time, the equipment was estimated to have a residual value of $5,000 at the end of an estimated five year service life. During 2016 and 2017, the company recorded straight-line depreciation on the equipment. Required: Prepare all the journal entries for 2018 relating to the equipment for each of the following Assume that the company switched to sum-of-the-years'-digits depreciation at the beginning of Assume, instead, that at the beginning of 2018, the equipment is determined to have a five-year ndependent situations (ignoring income taxes) 2018 with a new estimated remaining life of four years. remaining service life. Straight-line depreciation will still be used

Explanation / Answer

Cost of asset 55000 Less : Salvage value 5000 Estimated life of asset 5 Year Depreication to be charged as per straightline method =((55000-5000)/5)     = 10000 Depreciable asset 50000 Less : Depreciation for 2016 10000 Closing Value at the end of 2016 40000 Less : Depreciation for 2017 10000 Closing Value at the end of 2017 30000 Assumption a) Now Company switched to sum of years' -digit depreciation with estimated remaining life of four years So revised Schedule of depreciation will be as follows Year Depreicable Asset -A Digits Sum of Digits -B Depreication Expense=A*B Book Value 2018 30000 4 4/10 12000 18000 2019 30000 3 3/10 9000 9000 2020 30000 2 2/10 6000 3000 2021 30000 1 1/10 3000 0 10 Date/S. N. Accounts Title & Explanation Debit Credit Amount in $ Amount in $ 2018 Depreciation 18000 Accumulated Depreciation 18000 Assumption b) Company revised the estimated remaining life of equipment to be 5 Years with straight-line depreciation method Remaining Depreicable amount 30000 No. of years 5 Depreciation for each of the remaining 5 year 6000 Date/S. N. Accounts Title & Explanation Debit Credit Amount in $ Amount in $ 2018 Depreciation 6000 Accumulated Depreciation 6000 Note : we have assumed that residual value will be available under both assumption.

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