On January 1, 2016 Kefauver Company purchased a piece of equipment for $375,000. The equipment had a useful life of 10 years and a residual value of $10,000. The company initially starts recording depreciation on a straight-line method. The following independent situations occur at the beginning of 2018:
a.The life of the equipment was originally estimated to be 10 years but due to the wear and tear on the machine they changed it to a remaining life of 7 years.b.It was discovered that when initially recorded on the books the residual value had been ignored.?
Required:Prepare all journal entries related to the equipment for 2018 for each of the independent situations, ignoring income taxes.
What will be an ideal response?
?a. Change in estimate???
| Straight-line depreciation | $375,000- $10,000 | =$36,500 | Per year | |||||||||||||
| ? | 10 | ? | ? | |||||||||||||
| Book value at the beginning of 2018 | = | $375,000 - ($36,500× 2) | = | $302,000 | ||||||||||||
| Depreciation | = | Remaining book value - residual value | ? | |||||||||||||
| ? | ? | Remaining life | ? | ? | ||||||||||||
| ? | ? | ? | ? | ? | ? | ? | ||||||||||
| ? | = | $302,000-$10,000 | =$ 41,714 | ? | ||||||||||||
| ? | ? | 7 | ? | ? | ? | ? | ||||||||||
| Depreciation Expense | ? | 41,714 | ? | |
| ? | Accumulated Depreciation | ? | 41,714 | |
| To record depreciation 2018 | ? | ? | ? | |
| Depreciation without residual value | = | $375,000 | ?= | $37,500 | per year? | ? | |||||
| ? | ? | 10 | ? | ? | ? | ? | ? | ||||
| Incorrect accumulated depreciation | = | $75,000($37,500× 2) | ? | ||||||||
| ? | ? | ? | ? | ? | ? | ||||||
| Correct depreciation | $375,000-$10,000 | =$36,500 | Per year | ||||||||
| ? | 10 | ? | ? | ||||||||
| Correct accumulated depreciation | = | $73,000($36,500×2) | ? | ||||||||
| Accumulated Depreciation | 2,000 | ? | ||
| ? | Retained Earnings | ? | 2,000 | |
| Prior period adjustment for error ($73,000 - $75,000) | ||||
| ? | ? | ? | ? | ? |
| Depreciation Expense | ? | 36,500 | ? | |
| ? | Accumulated Depreciation | 36,500 | ||
| To record depreciation expense for 2018 | ? | |||
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