Question

On January 1, 20X2, Union Co. purchased a machine for $528,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 20X5, Union determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $48,000. An accounting change was made in 20X5 to reflect these additional data.

The accumulated depreciation for this machine should have a balance at December 31, 20X5, of __________.

Answer 1

Union Co. should have an accumulated depreciation balance of $320,000 for the machine at December 31, 20X5 after recalculating the depreciation expense based on the revised estimate of useful life and salvage value.

Step-by-step explanation:

We need to recalculate the depreciation for the machine to reflect the changes in its useful life and salvage value as of January 1, 20X5. To do this, we first need to compute the total amount of depreciation that should have been recognized up to December 31, 20X4, based on the revised estimates. The new total cost less the salvage value is $528,000 - $48,000 = $480,000. With a revised useful life of 6 years, the annual depreciation would now be $480,000 / 6 = $80,000.

For the first three years (20X2, 20X3, and 20X4), Union Co. would have recorded a total of 3 years x $80,000 = $240,000 in depreciation. Given that the accounting change was made at the beginning of 20X5, we will add the depreciation for that year as well. Thus, the total accumulated depreciation at the end of 20X5 would be $240,000 + $80,000 = $320,000.