Question
In: Accounting
A company purchased equipment at the beginning of 2021 for $500,000. The equipment is depreciated on...
A company purchased equipment at the beginning of 2021 for $500,000. The equipment is depreciated on a straight-line basis with an estimated useful life of nine years and a $50,000 residual value. At the beginning of 2024, the company revised the equipment’s useful life to a total of seven years (four more years) because of changing customer demand. The company also revised the expected residual value to $30,000. What depreciation expense would the company record for the year 2024 on this equipment? Multiple Choice $80,000. $87,500. $50,000. $75,000.
Solutions
Expert Solution
Correct answer--------$80,000
Working
| Straight line Method For year 2021 to 2023 | ||
| A | Cost | $ 500,000 |
| B | Residual Value | $ 50,000 |
| C=A - B | Depreciable base | $ 450,000 |
| D | Life [in years left ] | 9 |
| E=C/D | Annual SLM depreciation | $ 50,000 |
.
| Depreciation schedule-Straight line method | ||||
| Year | Book Value | Depreciation expense | Accumulated Depreciation | Ending Book Value |
| 2021 | $ 500,000 | $ 50,000 | $ 50,000 | $ 450,000 |
| 2022 | $ 450,000 | $ 50,000 | $ 100,000 | $ 400,000 |
| 2023 | $ 400,000 | $ 50,000 | $ 150,000 | $ 350,000 |
.
| Straight line Method -For 2024 | ||
| A | Carrying value at 2024 beginning | $ 350,000 |
| B | Residual Value | $ 30,000 |
| C=A - B | Depreciable base | $ 320,000 |
| D | Life [in years left ] | 4 |
| E=C/D | Annual SLM depreciation | $ 80,000 |
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