Wardell Company purchased a mini computer on January 1, 2016, at a cost of $40,000. The computer has beendepreciated using the straight-line method over an estimated five-year useful life with an estimated residual valueof $4,000. On January 1, 2018, the estimate of useful life was changed to a total of 10 years, and the estimate ofresidual value was changed to $900.Required:1. Prepare the appropriate adjusting entry for depreciation in 2018 to reflect the revised estimate.2. Repeat requirement 1, assuming that the company uses the sum-of-the-years’-digits method instead of thestraight-line method
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Wardell Company purchased a mini computer on January 1, 2016, at a cost of $40,000. The computer has been
depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value
of $4,000. On January 1, 2018, the estimate of useful life was changed to a total of 10 years, and the estimate of
residual value was changed to $900.
Required:
1. Prepare the appropriate
2. Repeat requirement 1, assuming that the company uses the sum-of-the-years’-digits method instead of the
straight-line method
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