On July 1, 2019, Wildhorse Co. purchased new equipment for $90,000. Its estimated useful life was 8 years with a $10,000 salvage value. On January 1, 2022, before making its depreciation entry for 2022, the company estimated the remaining useful life to be 10 years beyond December 31, 2022. The new salvage value is estimated to be $5,000. (a) Prepare the journal entry to record depreciation on December 31, 2019. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer: The journal entries to record depreciation on December 31, 2019 is:

Debit Depreciation expense $5,000

Credit Accumulated depreciation $5,000

(To recognize depreciation expense)

Explanation: Using a straight-line depreciation method with the formula below: (Cost - salvage value) / No of years

Depreciation expense = ($90,000 - $10,000) / 8 years = $10,000 yearly

From July 1, 2019 - December 31, 2019 (6 months), depreciation expense is $10,000 X 6/12 = $5,000. This holds for 2019 till 2021 - so the accumulated depreciation would have been $25,000.

The revision of the estimate in 2022 can be adopted prospectively, using the net book value of $65,000, hence there is no need to readjust the previously charged depreciation expense.