Question

Fellingham Corporation purchased equipment on January 1, 2019, for $236,000. The company estimated the equipment would have a useful life of 10 years with a $19,200 residual value. Fellingham uses the straight-line depreciation method. Early in 2021, Fellingham reassessed the equipment's condition and determined that its total useful life would be only six years in total and that it would have no salvage value. How much would Fellingham report as depreciation on this equipment for 2021?

Multiple Choice

• $32,107.

• $65,160.

• $48,160.

• $43,360.

Answer 1

Cost of equipment = $236,000

Salvage value = $19,200

Estimated useful life = 10 years

Annual depreciation expense = (Cost of equipment- Salvage value)/Estimated useful life

= (236,000 - 19,200)/10

= 216,800/10

= $21,680

Accumulated depreciation for 2 years = Annual depreciation expense x 2

= 21,680 x 2

= $43,360

Book value at the end of year 2
Cost	236,000
Accumulated depreciation for 2 years	- 43,360
Book value at point of revision	$192,640

Book value at point of revision	192,640
Revised salvage value	- 0
Revised depreciable cost	$192,640
Remaining useful life	4 years
Annual depreciation for final 4 years	192,640/4 = $48,160

Fellingham would report as depreciation on this equipment for 2021 = $48,160

Third option is correct.

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