Question

Yoshi Company completed the following transactions and events involving its delivery trucks. 2016 Jan. 1 Paid $25,015 cash plus $1,785 in sales tax for a new delivery truck estimated to have a five-year life and a $2,150 salvage value. Delivery truck costs are recorded in the Trucks account. Dec. 31 Recorded annual straight-line depreciation on the truck. 2017 Dec. 31 Due to new information obtained earlier in the year, the truck’s estimated useful life was changed from five to four years, and the estimated salvage value was increased to $2,850. Recorded annual straight-line depreciation on the truck. 2018 Dec. 31 Recorded annual straight-line depreciation on the truck. Dec. 31 Sold the truck for $5,400 cash.

Required: Calculate depreciation for year 2017.

Answer 1

The depreciation for the year 2017 for Yoshi Company's delivery truck, after adjusting for the revised useful life and salvage value, is $5,864.

Step-by-step explanation:

To calculate the depreciation for the year 2017 for Yoshi Company's delivery truck, we must adjust the original depreciation schedule to reflect the new estimated useful life and the increased salvage value. The original cost of the truck is $25,015 (excluding sales tax), and was originally estimated to have a 5-year life with a $2,150 salvage value. This would have resulted in annual straight-line depreciation as follows:

Annual Depreciation = (Cost - Salvage Value) / Useful Life

Annual Depreciation = ($25,015 - $2,150) / 5

Annual Depreciation = $22,865 / 5

Annual Depreciation = $4,573

In 2017, the truck's estimated useful life was changed to 4 years total and the salvage value was increased to $2,850. Since one year of depreciation has already been taken in 2016, we need to spread the remaining book value over the remaining 3 years:

Adjusted Annual Depreciation (2017 onwards) = (Book Value at start of 2017 - New Salvage Value) / Remaining Useful Life

Adjusted Annual Depreciation (2017 onwards) = ($25,015 - $4,573 - $2,850) / 3

Adjusted Annual Depreciation (2017 onwards) = $17,592 / 3

Adjusted Annual Depreciation (2017 onwards) = $5,864

Therefore, the depreciation for the year 2017 for Yoshi Company's delivery truck is $5,864.