[zowie4]

XYZ co. purchased equipent on Jan 1 2001, at a cost of 650000. The asset was estimated to have a 12 year life with a residual value of 50000. Xyz uses steaight line depreciation. In 2006, Clever revised its total estimated life to 10 years with no residual value.

Prepare journal entries to record xyz depreciation expense for 2005 and 2006

[morgaine300]

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[puvanes]

Yr 2005
Dr depreciation exp 54167
Cr accumulated depn 54167

Yr 2006
Dr depreciation exp 37917
Cr accumulated depn 37917

[pready]

To calculate the Depreciation expense for year 5 you need to calculate the amount of depreciation for each year. For the straight line method you need to take the Cost of the equipment, which is $650,000 minus the salvage value or residual value (same thing, different wording) of $50,000 = your depreciable base of $600,000. Now you take the depreciable base of $600,000 divided by the useful life of 12 years = $50,000 depreciation per year. So your depreciation expense for year 5 will be $50,000

Now to start the second part of the problem you first need to calculate the remaining book value of the equipment at the end of year 5. In order to do this you have to calculate the accumulated depreciation, which you already know the depreciation amount per year calculated above of $50,000 times 5 years = $250,000. Now you subtract this amount from your cost of $650,000 = $400,000 remaining book value. Now to calculate the depreciation amount you need to know two more things; 1) salvage value, which is $0, and 2) the useful life remaining on the equipment, which is 10 years minus the 5 years already used. Now you can calculate the depreciation amount for year 6, which is $400,000 divided by 5 years = $80,000 Depreciation amount for year 6, 7, 8, 9, and 10.