Question

On July 1, 2019, Pharoah Company purchased new equipment for $80,000. Its estimated useful life was 8 years with a $16,000 salvage value. On January 1, 2022, before making its depreciation entry for 2022, the company estimated the remaining useful life to be 10 years beyond December 31, 2022. The new salvage value is estimated to be $5,000. (a) Correct answer iconYour answer is correct. Prepare the journal entry to record depreciation on December 31, 2019.

Answer 1

Answer:

journal entry to record depreciation on December 31, 2019 is

Debit Depreciation $8,000

Credit Accumulated Depreciation $8,000

journal entry to record depreciation on December 31, 2022.

Debit Depreciation $5,000

Credit Accumulated Depreciation $5,000

Explanation:

Depreciation is the systematic allocation of the cost of an asset to the income statement over the estimated useful life of that asset.

It is determined as the depreciable value of the asset over the estimated useful life of the asset where the depreciable value is the difference between the cost and salvage value of the asset

Mathematically,  

Depreciation = (Cost - Salvage value)/Estimated useful life

Annual depreciation = (80000 - 16000)/8

= $8,000

Between July 1, 2019 and January 1 , 2022 is 2.5 years

Carrying amount of asset = $80,000 - 2.5($8,000)

= $60,000

If the company estimated the remaining useful life to be 10 years beyond December 31, 2022 and the salvage value is estimated to be $5,000, then

Depreciation = ($60,000 - $5,000)/11

= $5,000

Answer 2

Answer:

Dr Depreciation expense     $4,000

Cr Accumulated depreciation                 $4,000

Explanation:

The depreciation charge =cost -salvage value/useful life

cost of new equipment is $80,000

salvage value is $16,000

useful life is 8 years

depreciation for 2019 =($80,000-$16,000)/8 years

                                    =$8,000*6/12

                                     =$4000 (depreciation for six months)

This depreciation of $4,000 which would be debited to depreciation expense account and credited to accumulated depreciation

From  year 2022 onward,depreciation would change as follows

Depreciation=(cost-2019 depreciation -2020 depreciation-2021 depreciation-new salvage value)/new useful life

depreciation from for 2020 and 2012 is the $8000 per year

new salvage value is $5,000

new useful life is depreciation  for 2022=($80,000-$4000-$8000-$8,000-$5000)/10

=$5,500