Question

The asset's book value is $70,000 on June 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last six months of Year 3 would be:____________

a) $8,125.00
b) $7,375.00
c) $4,062.50
d) $3,750.00
e) $7,812.50

Answer 1

The correct answer is C that is $4,062.50

Step-by-step explanation:

The depreciation expense is computed as:

Depreciation expense = Book Value of asset - Salvage Value / Number of years × 6/ 12

where

Book value is $70,000

Salvage value is $5,000

Number of years is 8 because it is Year 3

Number of months is 6 months

= $70,000 - $5,000/ 8 × 6/ 12

= $65,000 / 8 × 6/ 12

= $8,125 × 6/ 12

= $4,062.50