Question

(Change in Estimate—Depreciation) Peter M. Dell Co. purchased equipment for \(510,000 which was estimated to have a useful life of 10 years with a salvage value of \)10,000 at the end of that time. Depreciation has been entered for 7 years on a straight-line basis. In 2018, it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time.

Instructions (a) Prepare the entry (if any) to correct the prior years’ depreciation.

(b) Prepare the entry to record depreciation for 2018

Short answer

No journal entry requires a change in estimate. The depreciation expenses are debited, and accumulated depreciation is credited by $7,334 to record the depreciation in 2018.

Step-by-step solution

Part A

There is no journal entry required for this because there are no changes made to the prior years in the case of a change in estimate. Changes are made to only upcoming years.

Part B

$\begin{array}{rcl}\mathbf{Accumulated}\mathbf{}\mathbf{Depreciation}& \mathbf{=}& \mathbf{Depreciation}\mathbf{}\mathbf{Expense}\mathbf{\times }\mathbf{7}\\ & \mathbf{=}& \frac{\mathbf{510}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{10}\mathbf{,}\mathbf{000}}{\mathbf{10}}\mathbf{\times }\mathbf{7}\\ & \mathbf{=}& \mathbf{\$}\mathbf{350}\mathbf{,}\mathbf{000}\\ & & \\ \mathbf{Carrying}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{Value}& \mathbf{=}& \mathbf{Cost}\mathbf{-}\mathbf{Accumulated}\mathbf{}\mathbf{}\mathbf{Depreciation}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{510}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{350}\mathbf{,}\mathbf{000}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{\$}\mathbf{160}\mathbf{,}\mathbf{000}\\ & & \\ & & \end{array}$

Depreciation after a change in estimate

$\begin{array}{rcl}\mathbf{Depreciation}\mathbf{}\mathbf{Expense}& \mathbf{=}& \frac{\mathbf{Depreciable}\mathbf{}\mathbf{cost}}{\mathbf{Remaining}\mathbf{}\mathbf{useful}\mathbf{}\mathbf{life}}\\ & \mathbf{=}& \frac{\mathbf{160}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{5}\mathbf{,}\mathbf{000}}{\mathbf{15}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{334}\\ & & \end{array}$

Date	Particulars	Debit ($)	Credit ($)
	Depreciation Expense	7,334
	Accumulated Depreciation		7,334
	(Being Depreciation expense recorded)