Question

On January 1, Year 1, Li Company purchased an asset that cost $35,000. The asset had an expected useful life of five years and an estimated salvage value of $7,000. 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 $3,500. What is the amount of depreciation expense to be recognized during Year 4

Answer 1

The amount of depreciation expense to be recognized during Year 4 is $7,350

Step-by-step explanation:

In order to calculate the amount of depreciation expense to be recognized during Year 4 we would have to calculate first the Depreciation as per straight line method as follows:

Depreciation as per straight line method=(Cost-Residual value)/Useful life

=($35,000-$7,000)/5=$5,600

Hence, book value as on beginning of the fourth year=$35,000-($5,600*3)=$18,200

Hence, depreciation revised for the 2 remaining years=($18,200-$3,500)/2

=$7,350

The amount of depreciation expense to be recognized during Year 4 is $7,350