Question

The Donut Stop acquired equipment for $13,000. The company uses straight-line depreciation and estimates a residual value o $3,000 and a four-year service life. At the end of the second year, the company estimates that the equipment will be useful for 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 $1,500 from the original estimate of $3,000. Required: Calculate how much The Donut Stop should record each year for depreciation in years 3 to 6. 13,000 Cost of the equipment Less: Accumulated Depreciation (Years 1 and 2) Book value, end of year 2 Less: New residual value New depreciable cost Remaining service life Annual depreciation in years 3 to 6 1.750

Answer 1

Calculate following

Cost of the equipment	13000
Less: Accumulated depreciation (years 1 and 2) (13000-3000/4*2)	-5000
Book value, end of year 2	8000
Less: New residual value	1500
New depreciable cost	6500
Remaining service life	4
Annual Depreciation in years 3 to 6	1625