Question

On July 1, 2022, Oriole Company purchased new equipment for $88,000. Its estimated useful life was 7 years with a $11,000 salvage value. On January 1,2025 , the company estimated that the equipment's remaining useful life was 10 years, with a revised salvage value of $5,500.

Answer 1

The subject of this question is Business. It involves the calculation and analysis of financial data related to equipment purchase and depreciation.

Step-by-step explanation:

The subject of this question is Business. It involves the calculation and analysis of financial data related to equipment purchase and depreciation.

The Oriole Company purchased new equipment for $88,000 with an estimated useful life of 7 years and a salvage value of $11,000. On January 1, 2025, the company revised the equipment's remaining useful life to 10 years and the salvage value to $5,500.

To calculate depreciation, you can use the straight-line method. The annual depreciation expense would be ($88,000 - $11,000) / 7 = $11,000. However, from 2025 onwards, the annual depreciation expense would be ($88,000 - $5,500) / 10 = $8,550.

Answer 2

The subject is Business at the College level, focusing on the adjustment of depreciation for a piece of equipment based on revised estimates of its useful life and salvage value using the straight-line method.

Step-by-step explanation:

The question is related to the process of accounting for depreciation of assets in a business context, specifically focusing on changes to the estimated useful life and salvage value of equipment part-way through its useful period. In this case, the Oriole Company has to account for the depreciation of the equipment from the purchase date until the date of re-evaluation, and then adjust future depreciation expense based on the revised estimates.

Initially, the equipment had a useful life of 7 years and a salvage value of $11,000. Depreciation for the first 2.5 years would have to be calculated using these figures. Starting January 1, 2025, the remaining book value, adjusted for the depreciation already incurred, would need to be spread out over the new estimated remaining useful life of 10 years using the revised salvage value of $5,500.

Calculating these amounts requires applying the straight-line method of depreciation, where equal amounts of depreciation expense are allocated over each year of an asset's useful life.