Question

When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost 23,000 and its estimated salvage value is 1,500. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:

1) 10,750.00
2) 2,856.25
3) 2,687.50
4) 5,375.00
5) 5,543.75

Answer 1

To calculate the depreciation expense in year 5, subtract the estimated salvage value from the vehicle cost to get the depreciable cost. Then divide the depreciable cost by the number of years to get the annual depreciation amount. Multiply the annual depreciation amount by the remaining years to get the depreciation expense in year 5.

Step-by-step explanation:

To calculate the depreciation expense in year 5, we need to calculate the annual depreciation amount and then multiply it by the number of years.

Given that the vehicle cost $23,000 and has an estimated salvage value of $1,500, the depreciable cost is $23,000 - $1,500 = $21,500.

The annual depreciation amount is the depreciable cost divided by the number of years. For the first 4 years, it is $21,500 / 8 = $2,687.50.

Since the vehicle's total estimated useful life was revised to 6 years, the remaining years are 6 - 4 = 2 years.

The depreciation expense in year 5 equals the annual depreciation amount multiplied by the remaining years, which is $2,687.50 * 2 = $5,375.00.