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Homework answers / question archive / On January 1st 2018, Box Inc

On January 1st 2018, Box Inc

Finance

On January 1st 2018, Box Inc. purchased a box-making machine for $300,000. They estimate that the machine has a service life of 7 years, and that the residual value of the machine at the end of its service life is $100,000. Box Inc uses the SYD method of depreciation for this machine.

 

On Jan 1st 2022, Box Inc revises the estimated total service life of the machine to 9 years, and reduces the estimated residual value to $50,000. Box Inc also changes the depreciation method to straight-line depreciation.

 

Provide the relevant journal entries on Dec 31st 2018.

 

Provide the relevant journal entries on Dec 31st 2022.

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First we calculate Depreciation using Sum of Years Digits (SOYD) method:

Depreciation Expenses = (Remaining Useful Life / Sum of Years Digits ) * Depreciable Base

Here,

Depreciable Base = Cost - Salvage Value

= 300000 - 100000

= $ 200000

 

Sum of Years Digits = 1+2+3+4+5+6+7 = 28

 

Depreciation from 2018 to 2021 = (7/28 ) * 200000 + (6/28) * 200000 + ( 5/28)*200000 + (4/28) * 200000

= 50000 + 42857.14 + 35714.28 + 28571.42

= $157,142.84

= $157,143

 

Now we calculate Depreciation as per Straight-line Method:

Depreciation Expenses = (Cost - Salvage Value ) / Useful Life of the Asset

= ( 300000 - 50000 ) / 9

= $ 27777.77 per year

 

Depreciation Expense for 2018 to 2021 =  27777.77 * 3

= $83,333.33

= $83,333

 

Excess Depreciation provided = 157143 - 83333 = $73809.52 or $73,810

 

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