Final answer:
After the adjustments to the salvage value and useful life, the new annual depreciation for the remaining years of the asset's life is calculated to be $1,600 per year.
Step-by-step explanation:
In order to calculate the new depreciation expense for the remaining years, we need to make adjustments based on the changes to the estimated salvage value and the useful life of the equipment. Initially, the equipment had a cost of $12,000, a salvage value of $2,000, and a useful life of 5 years. To calculate the annual depreciation before the adjustments, we use the formula:
Annual Depreciation = (Cost - Salvage Value) / Useful Life
Initial annual depreciation = ($12,000 - $2,000) / 5 = $2,000 per year.
After three years, the company has depreciated the asset by $2,000 x 3 = $6,000, which leaves a book value of $12,000 - $6,000 = $6,000. Now, the salvage value is reduced to $1,200 and the useful life extended to 6 years in total, meaning there are 3 remaining years of depreciation.
To calculate the new annual depreciation, we adjust the book value by subtracting the new salvage value and divide by the remaining useful life:
New Annual Depreciation = (Book Value - New Salvage Value) / Remaining Useful Life
New annual depreciation = ($6,000 - $1,200) / 3 = $1,600 per year.
The correct amount of depreciation to be charged against the machine during each of the remaining years is $1,600.