On January 1, 20x2, Astro Ltd. purchased a piece of equipment costing $84816. At the time,...

On January 1, 20x2, Astro Ltd. purchased a piece of equipment costing $84816. At the time, the equipment’s useful life was expected to be 8 years with an estimated residual value of $15821. In 20x6, these estimates were revised: the total estimated useful life of the equipment is expected to be 12 years and the residual value is expected to be $11736.

What will the depreciation expense be for 20x6? Assume the company uses straight-line depreciation.

Expert Solution

Year 20X2 to Year 20X5:

Cost of Equipment = $84,816
Residual Value = $15,821
Useful Life = 8 years

Annual Depreciation = (Cost of Equipment - Residual Value) / Useful Life
Annual Depreciation = ($84,816 - $15,821) / 8
Annual Depreciation = $68,995 / 8
Annual Depreciation = $8,624.375

Depreciation for 20X2 = $8,624.375
Depreciation for 20X3 = $8,624.375
Depreciation for 20X4 = $8,624.375
Depreciation for 20X5 = $8,624.375

Book Value at December 31, 20X5 = Cost of Equipment - Depreciation for 20X2 - Depreciation for 20X3 - Depreciation for 20X4 - Depreciation for 20X5
Book Value at December 31, 20X5 = $84,816 - $8,624.375 - $8,624.375 - $8,624.375 - $8,624.375
Book Value at December 31, 20X5 = $50,318.50

Year 20X6:

Book Value = $50,318.50
Remaining Useful Life = 8 years
Residual Value = $11,736

Revised Annual Depreciation = (Book Value - Residual Value) / Remaining Useful Life
Revised Annual Depreciation = ($50,318.50 - $11,736) / 8
Revised Annual Depreciation = $38,582.50 / 8
Revised Annual Depreciation = $4,822.8125

Therefore, depreciation expense for 20X6 is $4,822.8125 or $4,823

ekkarill92 answered 2 years ago

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