Question

Entity B bought equipment for $240,000 on January 1, 2021. It estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation was used. On January 1, 2022, Entity B decides that it will use the equipment for a total of 5 years. Compute the revised depreciation expense for 2022 and make the entry to record depreciation expense. Show work.

Answer 1

Part 1

Revised depreciation expense = $32,000

Part 2

The entry to record depreciation expense :

Debit : Depreciation Expense $32,000

Credit : Accumulated Depreciation $32,000

Step-by-step explanation:

Straight line method charges a fixed depreciation charge over the year of use of an asset.

Depreciation expense = (Cost - Salvage Value) ÷ Estimated Useful Life

2021

Depreciation expense = $80,000

2022

Old Depreciation expense = $80,000

New Depreciation expense = Depreciable Amount ÷ Remaining Useful Life

= ($240,000 - $80,000) ÷ 5

= $32,000