Question

Oriole Company purchased a computer for $9,600 on January 1, 2019. Straight-line depreciation is used, based on a 5-year life and a $1,200 salvage value. On January 1, 2021, the estimates are revised. Oriole now feels the computer will be used until December 31, 2022, when it can be sold for $600?

Answer 1

Depreciation on 2021 is $2,820

Step-by-step explanation:

First, let's compute depreciation expense from January 1, 2019 to December 31, 2020 using the original cost and salvage value.

STRAIGHT LINE METHOD FORMULA :

( Cost of an asset - Salvage value) / life of an asset

($9,600 - $1,200) - 5 years

= $1,680 (annual depreciation) x 2 years (January 1 2019 to December 31, 2020)

= $3,360

Second, Compute the carrying amount on January 1, 2021. Deduct accumulated depreciation from January 01, 2019 to December 31, 2020 from the cost of the computer.

$9,600 - $3,360 = $6,240

FINALLY, depreciate using the new remaining life of an asset and new salvage value.

New life remaining = 2 years

New salvage value = $600

($6,240 - $600) / 2 years = $2,820 (answer)