Questions: Salem Amusement Park paid 180,000 for a concession stand. Salem started out depreciating the building using the straight-line method over 10 years with a residual value of zero. After using the concession stand for six years, Salem determines that the building will remain useful for only two more years. Record Salem's depreciation on the concession stand for year seven using the straight-line method. (Record debits first, then credits. Exclude explanations from any journal entries.)

Solution Steps

To solve this problem, we need to calculate the depreciation expense for the seventh year using the straight-line method. Initially, the building was to be depreciated over 10 years, but after six years, the useful life is revised to a total of eight years. We first calculate the annual depreciation for the first six years, then determine the remaining book value, and finally calculate the new annual depreciation for the remaining two years.

1. Calculate the initial annual depreciation using the original useful life.
2. Determine the accumulated depreciation after six years.
3. Calculate the remaining book value after six years.
4. Calculate the new annual depreciation based on the revised useful life of two more years.
5. Record the journal entry for the depreciation expense for year seven.

The initial annual depreciation is calculated using the formula: \[ \text{Initial Annual Depreciation} = \frac{\text{Initial Cost}}{\text{Original Useful Life}} = \frac{180000}{10} = 18000 \]

The accumulated depreciation after six years is given by: \[ \text{Accumulated Depreciation} = \text{Initial Annual Depreciation} \times 6 = 18000 \times 6 = 108000 \]

The remaining book value after six years is calculated as: \[ \text{Remaining Book Value} = \text{Initial Cost} - \text{Accumulated Depreciation} = 180000 - 108000 = 72000 \]

With the revised useful life, the new annual depreciation is: \[ \text{New Annual Depreciation} = \frac{\text{Remaining Book Value}}{\text{Revised Useful Life} - 6} = \frac{72000}{8 - 6} = \frac{72000}{2} = 36000 \]

The journal entry for year seven is as follows:

• Date: Year 7
• Accounts:
  • Debit: Depreciation Expense = 36000
  • Credit: Accumulated Depreciation = 36000

Final Answer