ACC 205 Homework: Week Five Exercises Assignment 1.S10-5
On
February 28, 2017, Rural Tech Support purchased a copy machine for $53,400. Rural Tech
... [Show More] Support
expects the machine to last for six years and to have a residual value of $3,000.
Compute depreciation expense on the machine for the year ended December 31,2017, using the straightline method.
Begin by selecting the formula to calculate the company's depreciation expense on the machine for the
year ended December 31, 2017.
Then enter the amounts and calculate the depreciation expense. (Abbreviation used: Acc. = accumulated.
Do not round intermediary calculations. Only round the amount you input for straight-line depreciation to
the nearest dollar.)
Straight-line
[( Cost - Residual Value ) / Useful Life ] x (
Number of
Months / 12 ) = depreciation
[( $53,400 - $3,000 ) / 6 ] x ( 10 / 12 ) = $7,000
Assume that XYZ Catering Services paid $90,000 for equipment with a 15-year life and zero expected
residual value. After using the equipment for six years, the company determines that the asset will remain
useful for only five
more years.
.
Requirement 1. Record depreciation expense on the equipment for year 7
by the straight-line method.
First, select the formula to calculate the company's revised depreciation expense on the equipment for
year 7.
Then enter the amounts and calculate the depreciation for year 7.
(Enter "0" for items with a zero value.)
Revised
( Book value - Residual value ) /
Revised useful life
remaining = depreciation
( $54,000 - $0 ) / 5 = $10,800
To find book value take 90,000-0/15 = 6,000 now take 6,000 * equipment 6 year = 36,000 now subtract
90,000-36,000=54,000
Record the depreciation on the equipment for year
77.
(Record debits first, then credits. Select the explanation on the last line of the journal entry table.)
Date Accounts and Explanation Debit Credit
Depreciation Expense—Equipment 10,800
Accumulated Depreciation—Equipment 10,800
To record depreciation on equipment.
Requirement 2. What is accumulated depreciation at the end of year
77?
The accumulated depreciation at the end of year 7
is $ 46,800 .
HELP: Assume that Micron Precision paid $120,000 for equipment with a 15-year life and zero
expected residual value. After using the equipment for six years, the company determines that the asset
will remain useful for only five more years.
Requirement 1. Record depreciation expense on the equipment for year 7
by the straight-line method.
Estimating the useful life and residual value of a plant asset poses a challenge. As the asset is used, the
business may change its estimated useful life or estimated residual value. If this happens, the business
must recalculate depreciation expense. For example, the business may find that its truck lasts eight years
instead of five. This is a change in estimated useful life. Accounting changes like this are common
because useful life and residual value are estimates and, as a result, are not based on perfect foresight.
When a company makes an accounting change, generally accepted accounting principles require the
business to recalculate the depreciation for the asset in the year of change and in future periods. It does
not require that businesses restate prior years' financial statements for this change in estimate. The
revised depreciation would be recomputed as follows:
Revised depreciation = (Book value - Revised residual value) / Revised useful life remaining
In our problem, the residual value has remained the same, $0, but
Micron Precision has determined that the asset will remain useful for only five
more years.
For a change in either estimated asset life or residual value, the asset's remaining depreciable book
value is spread over the asset's remaining life. We will need to compute the equipment book value at the
end of year 6.
To do so, we must calculate the accumulated depreciation balance at the end of year 6.
Begin by computing the original annual depreciation amount using the straight-line method. [Show Less]