Question

The Donut Stop acquired equipment for $22,000. The company uses straight-line depreciation and estimates a residual value of $3,200 and a four-year service life. At the end of the second year, the company estimates that the equipment will be useful for four additional years, for a total service life of six years rather than the original four. At the same time, the company also changed the estimated residual value to $1,800 from the original estimate of $3,200. Required: Calculate how much The Donut Stop should record each year for depreciation in years 3 to 6. Cost of the equipment Less: Accumulated Depreciation (Years 1 and 2) Book value, end of year 2 Less: New residual value New depreciable cost ſ Remaining service life Annual depreciation in years 3 to 6

Answer 1

Calculate annual depreciation

Cost of equipment	22000
Less: Accumulated depreciation (Years 1 and 2) (22000-3200/4*2)	9400
Book value end of year 2	12600
Less: New residual value	1800
New depreciable cost	10800
remaining useful life	4
Annual depreciation in years 3 to 6	2700