Question

Don's copy shop bought equipment for $450,000 on january 1, 2020. don estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. on january 1, 2021, don decides that the business will use the equipment for a total of 5 years. what is the revised depreciation expense for 2021? group of answer choices

-$112,500
-$ 150,000
-$ 60,000
-$ 75,000

Answer 1

The revised depreciation expense for 2021 after changing the estimated useful life to 5 years is calculated as the remaining book value after the first year's depreciation divided by the new total estimated useful life, resulting in -$60,000 (option 3).

Step-by-step explanation:

To calculate the revised depreciation expense for 2021 for Don's copy shop equipment, we have to adjust for the change in the estimated useful life of the equipment. Initially, the equipment was expected to be used for 3 years with no salvage value.

The annual depreciation for the first year (2020) was $450,000 / 3 years = $150,000. By the end of 2020, the book value of the equipment would be $450,000 - $150,000 = $300,000.

On January 1, 2021, Don revises the estimated useful life to a total of 5 years (2 remaining years after 2020). Therefore, the revised annual depreciation for the remaining years would be: $300,000 / 5 years = $60,000.

The correct answer for the revised depreciation expense for 2021 is -$60,000.