A Large Lathe Was Bought on January 1, 2013 for $15,000,000

question 65

Essay

A large lathe was bought on January 1, 2013 for $15,000,000. It was expected to last for 12 years and have a residual value of $300,000. The company uses straight-line depreciation. At the beginning of 2018, the remaining useful life of the lathe was revised to be four more years (for nine years in total). Management also felt that all equipment should now be depreciated using the declining balance method at a 25% rate. The company has a December 31 year-end.
Required: Prepare the entries to record depreciation for 2013 and 2018.

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Definitions:

Par Common Stock

The nominal or face value assigned to common stock shares in the charter of a corporation.

Cumulative Preferred Stock

A type of preferred stock where dividends accrue if not paid in a given year and must be paid out before any dividends can be distributed to common stockholders.

Issued

Refers to the act of distributing or making available something, such as stocks or bonds, to the public for the first time.

Cumulative Preferred Stock

A type of preferred stock where dividends accumulate if not paid in a given year, requiring payment of missed dividends before common shareholders can receive dividends.