Question

Cullumber Company purchased a machine on January 1, 2016, for $910000. At the date of acquisition, the machine had an estimated useful life of 6 years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2019, Cullumber determined, as a result of additional information, that the machine had an estimated useful life of 8 years from the date of acquisition with no salvage. An accounting change was made in 2019 to reflect this additional information. What is the amount of depreciation expense on this machine that should be charged in Cullumber's income statement for the year ended December 31, 2019

Answer 1

$91,000

Step-by-step explanation:

Given,

Acquisition cost = $910,000

Salvage value = $0

Useful life = 6 years

Depreciation expense under Straight line method = (Cost - Salvage value) ÷ Useful life

Therefore, Depreciation expense for 2016 = $910,000 ÷ 6 years = $151,667

Depreciation expense for 2017 = $151,667 and for 2018 = $151,667

Therefore, book value after three years = $910,000 - ($151,667 × 3) = $455,000

The new decision made the useful life of the machine to 8 years. Remaining useful life = (8 - 3) = 5 years

Therefore, depreciation expense for 2019 = $455,000 ÷ 5 years = $91,000