Question

Wardell company purchased a mini computer on January 1, 2022, at a cost of $42,550. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $4,300. On January 1, 2024, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $930. What is the depreciation expense for the year 2024?

1) $3,625
2) $3,225
3) $4,300
4) $930

Answer 1

The depreciation expense for the year 2024 is $5,946.

Step-by-step explanation:

To calculate the depreciation expense for the year 2024, we first need to determine the new depreciable base of the mini computer. The depreciable base is the original cost minus the estimated residual value.

Given that the original cost is $42,550 and the new estimated residual value is $930, the new depreciable base is $42,550 - $930 = $41,620.

Since the estimate of useful life was changed to a total of 10 years, the remaining useful life as of January 1, 2024, is 10 - 3 = 7 years.

Therefore, the depreciation expense for the year 2024 is $41,620 / 7 = $5,945.71 (rounded to the nearest dollar).

Answer 2

The correct depreciation expense for the year 2024, after adjusting for the change in useful life and residual value, is $3,290. The options provided in the question do not include this correct amount.

Step-by-step explanation:

The depreciation expense for the year 2024 for Wardell company's mini computer can be calculated as follows:

• Calculate the total amount of depreciation before the change in estimate:
  Total depreciation before change = (Cost of computer - Original residual value) / Original useful life
  
  = ($42,550 - $4,300) / 5 years
  
  = $7,650 per year for 2 years
  
  = $15,300
• Calculate the book value as of January 1, 2024, before the change:
  Book value before change = Cost of computer - Total depreciation before change
  = $42,550 - $15,300
  
  = $27,250
• Calculate the new annual depreciation expense based on the revised estimates:
  New annual depreciation expense = (Book value as of January 1, 2024 - New residual value) / Remaining useful life after change
  = ($27,250 - $930) / Remaining 8 years (10 years total - 2 years elapsed)
  
  = $26,320 / 8 years
  
  = $3,290

Therefore, the depreciation expense for the year 2024 would be $3,290, which means the correct answer is not listed among the provided options.