Question

On July 1, 2019, Pharoah Company purchased new equipment for $80,000. Its estimated useful life was 8 years with a $16,000 salvage value. On January 1, 2022, before making its depreciation entry for 2022, the company estimated the remaining useful life to be 10 years beyond December 31, 2022. The new salvage value is estimated to be $5,000. (a) Correct answer iconYour answer is correct. Prepare the journal entry to record depreciation on December 31, 2019.

Answer 1

The straight-line depreciation for Pharoah Company's equipment acquired on July 1, 2019, for the year ending December 31, 2019, is $8,000. This is recorded with a debit to Depreciation Expense and a credit to Accumulated Depreciation - Equipment.

Step-by-step explanation:

To calculate depreciation for the equipment purchased by Pharoah Company, we will use the straight-line method. Initially, the equipment had a useful life of 8 years and a salvage value of $16,000. The straight-line depreciation expense can be calculated using the initial cost minus the salvage value, divided by the useful life:

Initial Depreciation Expense = (Cost - Salvage Value) / Useful Life
= ($80,000 - $16,000) / 8 years
= $64,000 / 8 years
= $8,000 per year
The journal entry to record depreciation on December 31, 2019, would be:

• Debit Depreciation Expense: $8,000
• Credit Accumulated Depreciation - Equipment: $8,000

This entry represents the first year of depreciation for the equipment.

Answer 2

journal entry to record depreciation on December 31, 2019 is

Debit Depreciation $8,000

Credit Accumulated Depreciation $8,000

journal entry to record depreciation on December 31, 2022.

Debit Depreciation $5,000

Credit Accumulated Depreciation $5,000

Step-by-step explanation:

Depreciation is the systematic allocation of the cost of an asset to the income statement over the estimated useful life of that asset.

It is determined as the depreciable value of the asset over the estimated useful life of the asset where the depreciable value is the difference between the cost and salvage value of the asset

Mathematically,

Depreciation = (Cost - Salvage value)/Estimated useful life

Annual depreciation = (80000 - 16000)/8

= $8,000

Between July 1, 2019 and January 1 , 2022 is 2.5 years

Carrying amount of asset = $80,000 - 2.5($8,000)

= $60,000

If the company estimated the remaining useful life to be 10 years beyond December 31, 2022 and the salvage value is estimated to be $5,000, then

Depreciation = ($60,000 - $5,000)/11

= $5,000