Question

Equipment was purchased for $50,000. At that time, the equipment was expected to be used eight years and have a residual value of $10,000. The company uses straight-line depreciation. At the beginning of the third year, the company changed its estimated useful life to a total of six years (four years remaining) and the residual value to $8,000. What is depreciation expense in the third year? 82 Skipped Multiple Choice $8,000. $5,000. $7,000. $5,500.

Answer 1

Depreciation expenses in the third year $ 8,000 Working Notes: Equipment Cost = $50,000 salvage value = $10,000 Useful life = 8 Years Depreciation = (Cost of Equipment- salvage value)/useful life = ($50,000-$10,000)/8 = $5,000 Accumulated Depreciation at beginning of year 3 = $5,000*2 = $10,000 Book value at the beginning year 3 is = $50,000-$10,000 = $40,000 Revised Useful life = 6 Years Revised salvage value = $8,000 Remaining useful life = 6-2 = 4 yaers Revised annual Depreciation = ($40,000-$8,000)/4 = $8,000