On January 1, 2016, the Mills Car Repair Company Acquired

question 123

Essay

On January 1, 2016, 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
2016 and 2017, the company recorded straight-line depreciation on the equipment.
Required:
Prepare all the journal entries for 2018 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 2018 with a new estimated remaining life of four years.
b. Assume, instead, that at the beginning of 2018, the equipment is determined to have a five- year remaining service life. Straight-line depreciation will still be used.
c. Assume, instead, that at the beginning of 2018 the company discovered that it had erroneously ignored the estimated residual value in the computation of its depreciation for
2016 and 2017.

---

Definitions:

Capital Budgeting

The process by which investors and managers decide which long-term projects or investments a business should undertake, based on potential profitability.

What-If Questions

Scenario-based queries used to assess the impact of potential changes or decisions in a given situation.

Base Case NPV

The Net Present Value calculated under baseline assumptions, used as a standard to evaluate the viability of an investment.

Discounted Payback

A capital budgeting method that calculates the time required to recoup the investment in a project, by taking into account the present value of expected cash flows.