On July 1, 2019, Cullumber Company purchased new equipment for $85,000. Its estimated useful life was 5 years with a $12,000 salvage value. On December 31, 2022, the company estimated that the equipment’s remaining useful life was 10 years, with a revised salvage value of $5,000.
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.
On July 1, 2019, Cullumber Company purchased new equipment for $85,000. Its estimated useful life was 5 years with a $12,000 salvage value. On December 31, 2022, the company estimated that the equipment’s remaining useful life was 10 years, with a revised salvage value of $5,000.
Prepare the
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Account Titles and Explanation
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Debit
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Credit
|
|---|---|---|
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Depreciation Expense
|
7300 | |
|
|
7300 |
Prepare the journal entry to record depreciation on December 31, 2020.
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|
||
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Account Titles and Explanation
|
Debit
|
Credit
|
|---|---|---|
|
Depreciation Expense
|
14600
|
|
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Accumulate Depreciation - Equipment
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14600 |
- Compute the revised annual depreciation on December 31, 2022.
- Prepare the journal entry to record depreciation on December 31, 2022
- Compute the balance in Accumulated Depreciation—Equipment for this equipment after depreciation expense has been recorded on December 31, 2022.
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