Question

Colquhoun International purchases a warehouse for $311,000. The best estimate of the salvage value at the time of purchase was $16,000, and it is expected to be used for twenty-five years. Colquhoun uses the straight-line depreciation method for all warehouse buildings. After four years of recording depreciation, Colquhoun determines that the warehouse will be useful for only another fifteen years.

Required:
a. Calculate annual depreciation expense for the first four years.
b. Determine the depreciation expense for the final fifteen years of the asset’s life.

Answer 1

a. $11,800

b. $16,520

Step-by-step explanation:

Depreciation expense using straight line method is calculeted as :

Deprecation expense = (Cost - Salvage Value) ÷ Estimated useful life

therefore,

Annual depreciation expense for the first four years.

Deprecation expense = ($311,000 - $16,000) ÷ 25 = $11,800

The depreciation expense for the final fifteen years of the asset’s life.

Depreciable Amount = Cost - Salvage Value - Accumulated depreciation

= $311,000 - $16,000 - ($11,800 x 4)

= $247,800

Deprecation expense = $247,800 ÷ 15 = $16,520