Question

The Elmo Company purchased equipment on January 1, Year 1 at a cost of $26,000. The equipment was estimated to last for 8 years and have a salvage value of $2,000. At the end of Year 5, it was determined that the total useful life of the equipment was really 11 years, and the salvage value was expected to remain unchanged. The firm uses the straight-line method of depreciation.

a. What amount of depreciation was recorded for the equipment in year 1?
b. What was the amount of the depreciation expense recorded in year 6?

Answer 1

The Elmo Company

a. The amount of the depreciation expense recorded in year 1 = $3,000

b. The amount of the depreciation expense recorded in year 6 = $1,500

Step-by-step explanation:

a) Data and Calculations:

Cost of equipment on January 1, Year 1 = $26,000

Estimated useful life = 8 years

Salvage value = $2,000

Depreciable amount = $24,000 ($26,000 - 2,000)

Annual depreciation expense = $3,000 ($24,000/8)

Accumulated depreciation after 5 years = $15,000 ($3,000 * 5)

Net book value after 5 years = $11,000

Sixth year appraisals:

Remaining useful life = 6 years

Salvage value = unchanged at $2,000

Depreciable value = $9,000 ($11,000 - 2,000)

Annual depreciation expense = $1,500 ($9,000/6)