Question

Cullumber Company bought equipment for $150000 on January 1, 2021. Cullumber estimated the useful life to be 5 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2022, Cullumber decides that the business will use the equipment for a total of 6 years. What is the revised depreciation expense for 2022?

a. $30000
b. $12000
c. $24000
d. $20000

Answer 1

Annual depreciation 2022= $24,000

Step-by-step explanation:

Giving the following information:

Purchase price= $150,000

Useful life= 5 years

Salvage value= $0

First, we need to calculate the annual depreciation for 2021:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (150,000 - 0) / 5

Annual depreciation= $30,000

Now, the revised depreciation:

Annual depreciation= (150,000 - 30,000) / 5

Annual depreciation= $24,000

We divide by 5 years because one year has passed.