Question

On January 1, 2018, MachX, Inc. paid $45,000 for a machine and uses straight-line depreciation with an estimated useful life of 5 years and a $5,000 residual value. In 2019, MachX decided that the machine's original estimated useful life of 5 years should be revised to a total of only 3 years with a $1,000 salvage value. The revised depreciation expense for the year ended December 31, 2019 equals ______.

Answer 1

The revised depreciation expense for MachX, Inc. for the year ended December 31, 2019 is $18,000.

Step-by-step explanation:

The depreciation expense for the year ended December 31, 2019 for MachX, Inc., after revising the useful life and salvage value of the machine, can be calculated as follows. The original cost was $45,000 with a salvage value of $5,000, resulting in a depreciable base of $40,000 over 5 years.

This would mean an annual depreciation expense of $8,000. After one year, the book value of the machine would be $37,000 ($45,000 cost - $8,000 depreciation expense). However, in 2019, MachX, Inc. changed the useful life to 3 years total and the salvage value to $1,000.

This means that for the remaining 2 years, the revised depreciable base is $36,000 ($37,000 book value at the start of 2019 - $1,000 revised salvage value). Therefore, the revised depreciation expense for 2019 is $18,000, which is the remaining depreciable base of $36,000 divided by the remaining 2 years.