Question

Page < 2 > of 4 8. Angst Company purchased equipment in January of 2008 for $400,000. The equipment was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2018, when the equipment had been in use for 10 years, the company paid $50,000 to overhaul the equipment. As a result of this improvement, the company estimated that the useful life of the equipment would be extended an additional 5 years. What should be the depreciation expense recorded for this equipment in 2018? A) $10,000 B) $16,667 C) $20,000 D) $13,333

Answer 1

Answer:

Option B) is correct. i.e $16,667.

Carrying value at the beginning of 2018 =Purchased price - Depreciation expense for 10years
= 400000-(400,000/20 Years*10 years)
= $200,000
	Amount($)
Carrying value at the beginning of 2018	2,00,000
Add: cost of overhaul	50,000
New depreciable cost	2,50,000
New useful life =Remaining useful life(10 years)+additional 5 years	15 Years
Depreciation expense for 2018 = 250,000/15 years	16,667

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