Final answer:
The 2025 depreciation expense for the computer is $3,195, calculated based on the revised estimates of its useful life extending to December 31, 2026, with a new residual value of $650.
Step-by-step explanation:
To calculate the 2025 depreciation expense for the computer purchased by Wildhorse Limited, we first need to determine the total depreciation that should have been charged through the end of 2024, taking into account the computer's initial cost, the expected lifespan, and the initial residual value. As of January 1, 2023, the computer had a cost of $11,200 and an expected five-year life with a $800 residual value, giving annual depreciation of ($11,200 - $800) / 5 = $2,080 for the first two years (2023 and 2024).
By the end of 2024, total depreciation would be 2 * $2,080 = $4,160. At the beginning of 2025, the book value of the computer is its original cost minus accumulated depreciation, which is $11,200 - $4,160 = $7,040. With the new estimates in 2025, Wildhorse Limited expects the useful life to extend to December 31, 2026 (a total useful life of 4 years) with a revised residual value of $650.
The revised annual depreciation from 2025 to 2026 is calculated by subtracting the new residual value from the 2025 book value and dividing by the remaining useful life (two years). This gives a new annual depreciation of ($7,040 - $650) / 2 = $3,195. Therefore, the 2025 depreciation expense is $3,195.