Question

The following information is available on a depreciable asset owned by Mutual Savings Bank:

Purchase date July 1, Year 1
Purchase price $73,600
Salvage value $10,400
Useful life 8 years
Depreciation method straight-line

The asset's book value is $57,800 on July 1, Year 3. On that date, management determines that the asset's salvage value should be $5,400 rather than the original estimate of $10,400. Based on this information, the amount of depreciation expense the company should recognize during the last six months of Year 3 would be:

Multiple Choice

A. $1,750.00

B. $4,366.67

C $2,408.33

D. $2,183.33

E. $2,116.37

Answer 1

$4366.67

Step-by-step explanation:

Given: Asset book value on july 1, year 3= $57800

Salvage value= $5400

Useful life left= 6 years.

Now, computing the depreciation expense under straight line method.

Formula; Depreciation=
`(Asset\ book\ value - salvage\ value)/(useful\ life)`

Useful life in months=
`6* 12= 72\ months`

Next, Depreciation expense=
`(57800-5400)/(72) = \$ 727.77`

∴ Monthly depreciation expense= $ 727.77

Depreciation expense for last six months of year 3=
`727.77 * 6= \$ 4366.67`

∴ Depreciation expense for last six month of year 3 is $4366.67.