Question

g An asset was purchased for $120,000 on January 1, 2010 and originally estimated to have a useful life of 10 years with a residual value of $10,000. At the beginning of 2012, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000. Calculate the 2012 depreciation expense using the revised amounts and straight line method

Answer 1

Annual depreciation= $24,000

Step-by-step explanation:

First, we need to determine the accumulated depreciation until 2012:

Purchase price= $120,000

Useful life= 10 years

Salvage value= $10,000

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (120,000 - 10,000) / 10

Annual depreciation= $11,000

Accumulated depreciation= 11,000*2= $22,000

Now, we can calculate the new annual depreciation:

Useful life= 4 years

Salvage value= $2,000

Annual depreciation= [(120,000 - 22,000) - 2,000] / 4

Annual depreciation= $24,000