Question

10)Gordon Company purchased an asset on January 1, 2016 for $25,000. At that time, Gordon Company estimated the residual value would be $1,000 at the end of the asset's projected ten-year life. It is now January 1, 2020; Gordon Company now estimates the asset will have a residual value of $1,500, and has a remaining useful life of four years (will last until the end of 2023). Assuming Gordon Company uses the straight-line method, what will be the depreciation expense recorded for 2020?

A)$3,475

B)$2,937.50

C)$2,400

D)none of the above

Answer 1

Correct answer-------------A)$3,475

Working

Straight line Method - For 2016 to 2019
A	Cost	$ 25,000
B	Residual Value	$ 1,000
C=A - B	Depreciable base	$ 24,000
D	Life [in years left ]	10
E=C/D	Annual SLM depreciation	$ 2,400

.

Depreciation schedule-Straight line method
Year	Book Value	Depreciation expense	Accumulated Depreciation	Ending Book Value
2016	$          25,000.00	$               2,400.00	$                2,400.00	$              22,600.00
2017	$          22,600.00	$               2,400.00	$                4,800.00	$              20,200.00
2018	$          20,200.00	$               2,400.00	$                7,200.00	$              17,800.00
2019	$          17,800.00	$               2,400.00	$                      9,600	$              15,400.00

.

Straight line Method - For 2020 and onwards
A	Ending Book value at December 31, 2019	$ 15,400
B	Residual Value	$ 1,500
C=A - B	Depreciable base	$ 13,900
D	Life [in years left ]	4
E=C/D	Annual SLM depreciation	$ 3,475