Question

On January 1, Year 1, Li Company purchased an asset that cost $25,000. The asset had an expected useful life of five years and an estimated salvage value of $5,000. Li uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year, the company revised its estimated salvage value to $2,500. What is the amount of depreciation expense to be recognized during Year 4

Answer 1

Amount of depreciation expense =$5,250

Step-by-step explanation:

Under the straight line method the same amount is charged as depreciation expense over the estimated useful life of the asset

Initial depreciation = cost - salvage value /number of years

= (25,000 -5000)/5

= 4000 per year

Accumulated depreciation for 4 years= 4000× 3 = 12,000

Revised depreciation = (25,000 -12,000 - 2500)/2

=$5250 per year

Amount of depreciation expense for year 4 =$5250