6. A plant asset is acquired b
January 18th, 2023
6. A plant asset is acquired by abusiness on January 1, 2016, for $100,000. The asset’s estimatedresidual value is $10,000 and its estimated life is 5 years.Management chooses to use straight-line depreciation.
On January 1, 2018, managementrevises the total useful life to 8 years and the residual value to$5,000.
Required:
Compute the balance in Accumulated Depreciation on January 1,2018.
Compute the Depreciation Expense for the year ending December31, 2018.
Compute the balance in Accumulated Depreciation on December 31,2018.
Prepare the adjusting journal entry on December 31, 2018 for theyear. Omit the explanation.
Answer:
| Cost in whole in 2016 | a | 100,000 | |
| Salvage value | b | 10,000 | |
| Depreciable value | c = a-b | 90,000 | |
| Depreciation per year | d = c/5 | 18,000 | |
| Depreciation for 2 full years | e = d*2 | 36,000 | |
| Book value at the end of 2 years | f = a-e | 64,000 | Accumulated Depreciation on January 1, 2018. |
| New useful life | g | 8 | |
| Revised salvage value | h | 5,000 | |
| New depreciation value | I = f-h | 59,000 | |
| New depreciation per year | j = i/6 | 9,833.33 | Depreciation Expense for the year ending December 31, 2018 |
| Balance in accumulated depreciation on2018 December | k = f+j | 73,833.33 | balance in Accumulated Depreciation on December 31, 2018 |
Adjustingentry
| Debit depreciationexpenses | 9,833 | |
| Credit Accum. Dep – Equipments | 9,833 |
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