Question
On January 1, 2014, the Mills Car Repair Company acquired equipment at a cost of $55,000. At that time, the equipment was estimated to have
On January 1, 2014, the Mills Car Repair Company acquired equipment at a cost of $55,000. At that time, the equipment was estimated to have a residual value of $5,000 at the end of an estimated five-year service life. During 2014 and 2015, the company recorded straight-line depreciation on the equipment.
Required:
Prepare all the journal entries for 2016 relating to the equipment for each of the following independent situations (ignoring income taxes):
a. Assume that the company switched to sum-of-the-years'-digits depreciation at the beginning of 2016 with a new estimated remaining life of four years.
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b. Assume, instead, that at the beginning of 2016, the equipment is determined to have a five-year remaining service life. Straight-line depreciation will still be used.
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c. Assume, instead, that at the beginning of 2016 the company discovered that it had erroneously ignored the estimated residual value in the computation of its depreciation for 2014 and 2015.
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