Question

During 2019, Ryel Company’s controller asked you to prepare correcting journal entries for the following three situations:Prepare any necessary correcting journal entries for each situation. Also prepare the journal entry necessary for each situation to record depreciation expense for 2019.

Machine a was purchased for $50,000 on january 1, year 1. straight-line depreciation has been recorded for 5 years, and the accumulated depreciation account has a balance of $25,000. the estimated residual value remains at $5,000, but the service life is now estimated to be 1 year longer than estimated originally.

Answer 1

The Machine A depreciation needs to be adjusted due to an extension of service life. The remaining book value after 5 years is adjusted, and the new annual depreciation rate is recalculated for the extended service life.

Step-by-step explanation:

The Machine A situation requires adjusting the depreciation calculation due to the extension of service life by one additional year. Originally, Machine A was being depreciated over 5 years with a residual value of $5,000. Because $25,000 has already been depreciated, the remaining book value is $25,000 ($50,000 cost - $25,000 accumulated depreciation). Since the service life is now 6 years in total, you would subtract the residual value of $5,000 from the cost, leaving $45,000 to be depreciated over 6 years, which gives us the annual depreciation expense of $7,500 ($45,000 / 6 years).

However, for the remaining life after 5 years of depreciation, the annual depreciation expense would need to be recalculated taking into account the remaining useful life, which is now 2 years ($25,000 - $5,000 residual / 2 years).