Question

Reed Company is in the process of preparing its financial statements for 2022. During 2022, Reed changed from the double-declining balance method for its building to the straight-line method. The building originally cost $900,000. It had an original useful life of 25 years and a salvage value of $60,000. Purchase date was 1/1/20. The 2022 depreciation expense for the building will be:

Answer 1

$30,511.30

Step-by-step explanation:

The double declining method was used for two years

Depreciation expense using the double declining method = Depreciation factor x cost of the asset

Depreciation factor = 2 x (1/useful life) = 2 /25 = 0.08

Depreciation expense in 2020 = 0.08 x $900,000 = $72,000

Book value = $900,000 - $72,000 = $828,000

Depreciation expense in 2021 = 0.08 x $828,000 = $66,240

book value = $828,000 - $66,240 = $761,760

Straight line depreciation expense = (book value - Salvage value) / useful life

useful life = 25 - 2 = 23

book value = $761,760

salvage value = $60,000.

( $761,760 - $60,000. ) / 23 = $30,511.30

The depreciation expense for the remaining useful life of the asset would $30,511.30