Question

Aledo Manufacturing utilizes a calendar year as its fiscal year and depreciates plant assets using the straight-line method. On January 2, 2015, the company purchased a semi-truck for $215,000 with a useful life of 10 years and an estimated salvage value of $23,000. On January 1, 2020, the company decided to extend the useful life to 12 years while decreasing the estimated salvage value to $21,000. What amount of depreciation expense did Aledo record for the year ended December 31, 2020?

Multiple Choice:

a. $17,500
b. $16,500
c. $15,000
d. $14,000

Answer 1

The amount of depreciation expense recorded by Aledo for the year ended December 31, 2020, is approximately $16,666.67.

Step-by-step explanation:

In order to calculate the amount of depreciation expense for the year ended December 31, 2020, we need to consider the revised useful life and salvage value of the semi-truck.

Originally, the semi-truck had a useful life of 10 years and an estimated salvage value of $23,000. However, on January 1, 2020, the company decided to extend the useful life to 12 years and decrease the estimated salvage value to $21,000.

To calculate the depreciation expense, we subtract the revised salvage value from the original purchase price and divide it by the revised useful life.

Depreciation expense = (Purchase price - Revised salvage value) / Revised useful life = ($215,000 - $21,000) / 12 = $16,666.67.

Therefore, the amount of depreciation expense recorded by Aledo for the year ended December 31, 2020, is approximately $16,666.67, which is closest to option a. $17,500.