Response to the following problem:
On January 1, 2011, Young Inc. purchased a machine for $30,000. Its engineers had estimated useful life for the machine at twenty years. The residual value was estimated to be 10 percent of the original cost. Seven years later, on January 1, 2018, experts were hired to review the expected useful life and residual value of the machine. Here are the findings:
Estimated useful life as of January 1, 2018 8 years
New residual value $6,000
Depreciation has not yet been recorded in 2018. Assume that the straight-line method of depreciation is used and the company uses the ½ year rule in the years of acquisition and disposal.
Required:
1. Calculate the carrying amount of the machine at December 31, 2017.
2. Calculate the cost of the machine that remains to be depreciated at January 1, 2018 based on the new estimates.
3. Calculate the amount of depreciation expense to be recorded at December 31, 2018, and prepare the necessary journal entry.
4. Record the journal entries if the machine is sold on March 31, 2019 for $22,000.