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On January 1st 2018, Box Inc
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.
Expert Solution
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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