Answer:
a) Debit Depreciation expense $14,000
Credit Accumulated depreciation $14,000
Being entries to record depreciation expense for 2016
b) Debit Depreciation expense $26,666.67
Credit Accumulated depreciation $26,666.67
Being entries to record depreciation expense for 2017
The effect of a change in estimate is a reduction of the annual depreciation from $14,000 to $26,666.67 (increase of $12,666.67) annually
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
= (150,000 - 10,000)/10
= $14,000
At the beginning of 2017,
Net book value of asset
= $150,000 - 2($14,000)
= $124,000
If Sadler concluded that the total useful life of the equipment will be 8 years rather than 10, and that the residual value will be zero.
Depreciation expense for 2017
= $124,000/6
= $26,666.67
