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31 January, 12:40

Machinery purchased for $ 60,000 by Tom Brady Co. in 2010 was originally estimated to have a life of 8 years with a salvage value of $ 4,000 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2015, it is determined that the total estimated life should be 10 years with a salvage value of $ 4,500 at the end of that time. Assume straight-line depreciation. Prepare the entry to correct the prior year's depreciation, if necessaryPrepare the entry to record depreciation for 2015

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  1. 31 January, 12:53
    0
    No entry

    Depreciation account is debited by $4,100

    Explanation:

    (a). Purchase value of machine = $60,000

    Originally estimated life of machine = 8 years

    Salvage value at the end of time = $4000

    Annually depreciated value of machine = (Purchase value of machine - Salvage value of machine) : Original estimated year

    = ($60,000 - $4000) : 8

    =$56,000 : 8 = $7,000 per year

    Depreciation on the 5 year basis = $7000 * 5 = $35,000

    Value of machine after 5 year = $60,000 - $35,000 = $25,000

    Remaining life Depreciation = 10 - 5 = 5 years

    New depreciated amount value = Value of machine after 5 year - New salvage value

    = $25,000 - $4,500

    = $20,500

    Annual Depreciation next 5 years = $20,500 : 5 = $4,100 per year

    No entry is needed because $4,100 per year will give salvage value of $4,500.

    B) Entry to record the depreciation (2015)

    Depreciation A/c Dr. $4100

    To Machinery A/c $4100

    (Being depreciation for 2015 is recorded)

    Depreciation account is debited in the income and expenses account. Because it is a expenses.

    Hence, Machinery value will come down in assets side of balance sheet.
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