Question

At the beginning of 2015, Mazzaro Company acquired equipment costing $170,800. It was estimated that this equipment would have a useful life of 6 years and a salvage value of $17,080 at that time. The straight-line method of depreciation was considered the most appropriate to use with this type of equipment. Depreciation is to be recorded at the end of each year. During 2017 (the third year of the equipment’s life), the company’s engineers reconsidered their expectations, and estimated that the equipment’s useful life would probably be 7 years (in total) instead of 6 years. The estimated salvage value was not changed at that time. However, during 2020 the estimated salvage value was reduced to $5,000. Indicate how much depreciation expense should be recorded each year for this equipment, by completing the following table. Year Depreciation Expense Accumulated Depreciation 2015 $ $ 2016 2017 2018 2019 2020 2021 Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT

Answer 1

Solution:

Equipment cost = $170,800

Salvage value = $17,080

Depreciable cost = $170,800 - $17,080 = $153,720

Useful life = 6 years

Annual depreciation using SLM for first 2 years = $153,720 / 6 = $25,620

Book value at the beginning of 2017 = $170,800 - ($25,620*2) = $119,560

Remaining useful life after revised estimate = 7-2 = 5 years

Depreciation for 2017, 2018 and 2018 = ($119,560 - $17,080) / 5= $20,496

Book value at the beginning for 2020 = $119,560 - ($20,496*3) = $58.072

Revised salvage value = $17,080 - $5,009 = $12,080

Depreciation for 2020 and 2021 = ($58,072 - $12,080) / 2 = $22,996

Depreciation Schedule - Mazzaro Company
Year	Depreciation Expense	Accumulated Depreciation	Book value
Purchase Date			$170,800.00
2015	$25,620.00	$25,620.00	$145,180.00
2016	$25,620.00	$51,240.00	$119,560.00
2017	$20,496.00	$71,736.00	$99,064.00
2018	$20,496.00	$92,232.00	$78,568.00
2019	$20,496.00	$112,728.00	$58,072.00
2020	$22,996.00	$135,724.00	$35,076.00
2021	$22,996.00	$158,720.00	$12,080.00