E8-24 (Algo) (Supplement) Recording and Explaining Depreciation, Improvements, and Changes in Estimated Useful Life and Residual Value (Straight-Line Depreciation) LO8-2, 8-3 At the end of the prior year ending on December 31, Year 1, O'Connor Company's records reflected the following for Machine A: Cost when acquired $ 34,200 Accumulated depreciation 11,600 At the beginning of January of the current year, the machine was renovated at a cost of $17,600. As a result, the estimated life increased from five years to eight years, and the residual value increased from $5,200 to $7,200. The company uses straight-line depreciation. Required: 1. Prepare the journal entry to record the renovation. 2. How old was the machine at the end of the prior year

2. The machine was two years old at the end of the prior year because $5,800 x 2 will equal $11,600, which is the stated accumulated depreciation at the end of year 2.

Data and Calculations:

Cost of Machine = $34,200

Residual value = $5,200

Depreciable amount = $29,000 ($34,200 - $5,200)

Estimated useful life = 5 years

Annual depreciation expense based on straight-line = $5,800 ($29,000/5)

Accumulated depreciation = $11,600 ($5,800 x 2)

Net book value on December 31, Year 2 = $22,600 ($34,200 - $11,600)

Renovation cost = $17,600

Revised Depreciable amount = $33,000 ($22,600 + $17,600 - $7,200)

Revised useful life = 8 years

Remaining useful life = 6 (8 - 2)

Annual depreciation expense based on S/L = $5,500 ($33,000/6)

Thus, the machine was two years old before the renovation that increased its useful life by 6 years.

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