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10 February, 12:46

On January 2, 2015, Moser, Inc., purchased equipment for $100,000. The equipment was expected to have a $10,000 salvage value at the end of its estimated six-year useful life. Straight-line depreciation has been recorded. Before adjusting the accounts for 2019, Moser decided that the useful life of the equipment should be extended by three years and the salvage value decreased to $8,000.

a. Prepare a journal entry to record depreciation expense on the equipment for 2019. Round your answer to the nearest dollar.

b. What is the book value of the equipment at the end of 2019 (after recording the depreciation expense for 2019) ?

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  1. 10 February, 12:49
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    a. Debit Depreciation expense $6,400

    Credit Accumulated depreciation $6,400

    b. $33,600

    Explanation:

    Depreciation is the systematic allocation of cost to an asset. It is given as

    Depreciation = (Cost - salvage value) / estimated life

    When accumulated over time, it is known as accumulated depreciation which is deducted from the cost to get the carrying amount of the asset.

    Depreciation

    = (100000 - 10000) / 6

    =$15,000

    Between 2015 and start of 2019 is 4 years hence

    accumulated depreciation at start of 2019

    = $15,000 * 4

    = $60,000

    Net book value = $100,000 - $60,000

    = $40,000

    If the asset life is to be extended by 3 years, the remaining useful life changes from 2 to 5 years.

    New depreciation rate

    = (40,000 - 8000) / 5

    = $6,400

    To record this for 2019,

    Debit Depreciation expense $6,400

    Credit Accumulated depreciation $6,400

    The book value of the equipment at the end of 2019

    = $40,000 - $6,400

    = $33,600
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