Colquhoun International purchases a warehouse for $300,000. The best estimate of the salvage value at the time of purchase was $15,000, and it is expected to be used for twenty-five years. Colquhoun uses the straight-line depreciation method for all warehouse buildings. After four years of recording depreciation, Colquhoun determines that the warehouse will be useful for only another fifteen years. Calculate annual depreciation expense for the first four years. Determine the depreciation expense for the final fifteen years of the assets life, and create the journal entry for year five.

Solution

Original cost
Depreciation taken over first four years
Book value at end of year four
Salvage value
Revised remaining depreciable cost
Revised remaining useful life
Revised depreciation:

Depreciation Expense
Accumulated depreciationwarehouse