Question

Fellingham Corporation purchased equipment on January 1, 2016, for $240,000. The company estimated the equipment would have a useful life of 10 years with a $40,000 residual value. Fellingham uses the straight-line depreciation method. Early in 2019, Fellingham reassessed the equipment's condition and determined that its total useful life would be only eight years in total and that it would have a $20,000 residual value. How much would Fellingham report as depreciation on this equipment for 2019?

a) 36,000

b) 32,000

c) 25,000

d) 20,000

Answer 1

Correct answer----------b) 32,000

Working

Straight line Method - For year 2016 to 2018
A	Cost	$ 240,000
B	Residual Value	$ 40,000
C=A - B	Depreciable base	$ 200,000
D	Life [in years left ]	10
E=C/D	Annual SLM depreciation	$ 20,000

.

Depreciation schedule-Straight line method
Year	Book Value	Depreciation expense	Accumulated Depreciation	Ending Book Value
2016	$        240,000.00	$             20,000.00	$             20,000.00	$            220,000.00
2017	$        220,000.00	$             20,000.00	$             40,000.00	$            200,000.00
2018	$        200,000.00	$             20,000.00	$             60,000.00	$            180,000.00

.

Straight line Method
A	Book value at December 31 2018	$ 180,000
B	Residual Value	$ 20,000
C=A - B	Depreciable base	$ 160,000
D	Life [in years left ] (8-3)	5
E=C/D	Annual SLM depreciation	$ 32,000