The records of Luci Company reflected the following details for Machine A at December 31, 2015, the end of the company’s fiscal year:
Cost when acquired ............$ 30,000
Accumulated depreciation .......... 10,200
During January 2016, the machine was renovated at a cost of $ 15,500. As a result, the estimated life increased from five years to eight years and the residual value increased from $ 4,500 to $ 6,500. 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 2015?
3. Prepare the adjusting entry at the end of 2016 to record straight- line depreciation for the year.
4. Explain the rationale for your entries in (1) and (3).