Question

An asset was purchased for $100,000 on January 1, Year 1 and originally estimated to have a useful life of 12 years with a residual value of $10,000. At the beginning of the third year, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,800. Calculate the third-year depreciation expense using the revised amounts and straight-line method. a.$20,550.00 b.$21,550.00 c.$21,050.00 d.$19,550.00

Answer 1

A

Step-by-step explanation:

The following steps would be taken to determine the answer

1. Calculate depreciation expense given the initial information
2. calculate the accumulated depreciation by the third year. Accumulated depreciation is sum of depreciation expense
3. subtract the accumulated depreciation from the cost price of the asset. This would give the book value
4. calculate the depreciation expense using the new information and the book value

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

($100,000 - $10,000) / 12 = $7500

Depreciation expense each year is $7500

Accumulated depreciation = $7500 x 2 = $15,000

Book value at the beginning of year 3 = $100,000 - $15,000 = $85,000

($85,000 - $2800) / 4 = $20,550