A Plant Asset Is Acquired by a Business on January

question 115

Essay

A plant asset is acquired by a business on January 1, 2016, for $100,000. The asset's estimated residual value is $10,000 and its estimated life is 5 years. Management chooses to use straight-line depreciation.
On January 1, 2018, management revises the total useful life to 8 years and the residual value to $5,000.
Required:
1. Compute the balance in Accumulated Depreciation on January 1, 2018.
2. Compute the Depreciation Expense for the year ending December 31, 2018.
3. Compute the balance in Accumulated Depreciation on December 31, 2018.
4. Prepare the adjusting journal entry on December 31, 2018 for the year. Omit the explanation.

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Definitions:

Annual Profit

Annual profit refers to the total profit a business earns over the course of a fiscal year, accounting for all revenues minus expenses during that period.

Variable Costs

Costs that vary directly with the level of production or service activity, such as materials and labor.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and loan payments.

Total Cost

The sum of all expenses incurred by a firm in producing goods or services, including both fixed and variable costs.