Mistake, Inc., purchased a machine on January 1, 19X1, for $50,000 and estimated its life and...
Mistake, Inc., purchased a machine on January 1, 19X1, for $50,000 and estimated its life and salvage value to be 6 years and $3,000, respectively. Early in 19X4, Mistake realized that the remaining life is only 2 years and the salvage value will be $2,000.
(a) What correction entry is needed, if any? (b) What will the revised depreciation be for 19X4 and after?
Homework Answers
Answer (a) No Entry is required.
Explanation: The case given the question is of a change in accounting estimates for which no entry is required to record in the books.
Answer (b) Revised depreciation be for 19X4 and after = $11,750
Explanation:
Accumulated depreciation December 31, 19X3 (ie 3 years) = [($50,000 - $3,000) / 6years] * 3 years = $23,500
Book value as on January 1, 19X4 = $50,000 - $23,500 = $26,500
Remaining life (given) = 2 years
Revised depreciation be for 19X4 and after = (Book value as on January 1, 19X4 - Salvage value) / Remaining life
= ($26,500 - $3,000) / 2 years = $11,750.
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