Question

On January 1, Year 1, Flax Co. purchased a machine for $528,000 and depreciated it by the straight-line method using an estimated useful life of 8 years with no salvage value. On January 1, Year 4. Flax determined that the machine had a useful life of 6 years from the date of acquisition and will have a salvage value of $48,000. An accounting change was made in Year 4 to reflect the additional data. The accumulated depreciation for this machine should have a balance at December 31, Year 4, of o $308,000 O $352,000 0 $320,000 0 $292,000

Answer 1

Answer is $292,000

Year 1 to Year 3:

Cost of Machine = $528,000
Salvage Value = $0
Useful Life = 8 years

Annual Depreciation = (Cost of Machine - Salvage Value) / Useful Life
Annual Depreciation = ($528,000 - $0) / 8
Annual Depreciation = $66,000

Accumulated Depreciation at the of Year 3 = $66,000 + $66,000 + $66,000
Accumulated Depreciation at the of Year 3 = $198,000

Book Value at the of Year 3 = $528,000 - $198,000
Book Value at the of Year 3 = $330,000

Year 4:

Remaining Book Value = $330,000
Salvage Value = $48,000
Remaining Useful Life = 3 years

Annual Depreciation = (Remaining Book Value - Salvage Value) / Remaining Useful Life
Annual Depreciation = ($330,000 - $48,000) / 3
Annual Depreciation = $94,000

Accumulated Depreciation at the of Year 4 = $198,000 + $94,000
Accumulated Depreciation at the of Year 4 = $292,000