Question

Nash Co. purchased a equipment on January 1, 2015, for $583,000. At that time, it was estimated that the equipment would have a 10-year life and no salvage value. On December 31, 2018, the firm’s accountant found that the entry for depreciation expense had been omitted in 2016. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2018. At present, the company uses the sum-of-the-years’-digits method for depreciating equipment.

Prepare the general journal entries that should be made at December 31, 2018, to record these events. (Ignore tax effects.)

Answer 1

Ans:

Cost of the machine	583,000
Sum of the year
Year	digits	Depreciation	WDV
2015	10	106000	477,000
2016	9	95400	381,600
2017	8	84800	296,800
2018	7	74200	222,600
2019	6	63600	159,000
2020	5	53000	106,000
2021	4	42400	63,600
2022	3	31800	31,800
2023	2	21200	10,600
2024	1	10600	0
	55
31-Dec-18
Depreciation	Dr	95400
Accumulated depreciation - equipment	Cr		95400
(To record depreciation omitted for 2016)
1.WDV as on 1st January 2018	296800
2.Balance useful life (10 - 3)	7
3.SLM depreciation ( 1/2)	42400	pa
31-Dec-18
Depreciation	Dr	42400
Accumulated depreciation - equipment	Cr		42400
(to record depreciation for the year 2018)