Question

Change in Estimates. On January 1, 2018, Hogan Manufacturing Co. purchased equipment for $400,000. The company expects the equipment to be in use for 6 years, and to have a salvage value of 10% of the original cost at the end of its useful life. At the beginning of 2020, Hogan revised its estimate of the equipment’s useful life from 6 years to a total of 10 years, and also at that time reduced the estimated salvage value to zero. The company uses the straight-line depreciation method. Compute depreciation expense for 2020

Answer 1

• Depreciation Expense for 2020 = $ 35,000
• Working for above answer

A	Cost	$            400,000.00
B	Residual Value	$               40,000.00
C=A - B	Depreciable base	$            360,000.00
D	Life [in years]	6
E=C/D	Annual SLM depreciation	$               60,000.00
F = E x 2	2 year Accumulated Depreciation [for 2018 and 2019]	$            120,000.00
G = A - F	Book value at the time of revision	$            280,000.00
H	New Residual Value	$                              -
I = G - H	New Depreciable base	$            280,000.00
J = 10 years - 2 years passed	New remaining life	8
K = I/J	New revised depreciation	$               35,000.00