Question

Machinery purchased for $67,200 by Coronado Co. in 2016 was originally estimated to have a life of 8 years with a salvage value of $4,480 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2021, it is determined that the total estimated life should be 10 years with a salvage value of $5,040 at the end of that time. Assume straight-line depreciation.

Answer 1

Step-by-step explanation:

The journal entry would be

1. No journal entry is required

2. Depreciation Expense A/c Dr $4,592

To Accumulated Depreciation A/c $4,592

(Being depreciation expense is recorded)

The computation is shown below:

The depreciation expense would be

= (Purchase value of machinery - salvage value) ÷ (estimated useful life)

= ($67,200 - $4,480) ÷ (8 years)

= $62,720 ÷ 8 years

= $7,840

Now the accumulated depreciation for 5 years would be

= $7,840 × 5 years

= $39,200

And, the book value

= $67,200 - $39,200

= $28,000

The depreciation expense would be

= (Purchase value of machinery - salvage value) ÷ (estimated useful life)

= ($28,000 - $5,040) ÷ (5 years)

= $22,960 ÷ 5 years

= $4,592