Question

Waterway Industries purchased a depreciable asset for $837300 on January 1, 2018. The estimated salvage value is $84000, and the estimated total useful life is 9 years. The straight-line method is used for depreciation. In 2021, Waterway changed its estimates to a total useful life of 5 years with a salvage value of $142000. What is 2021 depreciation expense

Answer 1

$222,100

Step-by-step explanation:

Cost = $837,300

Residual value = $84,000

Useful life = 9 years

Now,

Annual straight line depreciation =
`(Cost-Residual Value)/(Useful life)`

Annual straight line depreciation =
`(837,300 - 84,000)/(9)`

Annual straight line depreciation =
`(753,300)/(9)`

Annual straight line depreciation = $83,700

Accumulated depreciation for three years i.e., 2018, 2019 and 2020 would be:

Accumulated depreciation = 3 × $83,700

Accumulated depreciation = $251,100

Book value (at the end of year 2020) = Cost - Accumulated depreciation

Book value (at the end of year 2020) = $837,300 - $251,100

Book value (at the end of year 2020) = $586,200

Revised useful life = 5 years

No. years asset has been used = 3 years

Remaining useful life = 2 years

Revised salvage value = $142,000

Therefore, depreciation expense for the remaining three year would be:

Revised depreciation expense =
`(Book value at the end of 2020 - Revised residual Value)/(Remaining useful life)`

Revised depreciation expense =
`(586,200 - 142,000)/(2)`

Revised depreciation expense =
`(444,200)/(2)`

Revised depreciation expense = $222,100