Question

In: Accounting

An asset was purchased for $118,000 on January 1, Year 1, and originally estimated to have...

An asset was purchased for $118,000 on January 1, Year 1, and originally estimated to have a useful life of 8 years with a residual value of $10,500. At the beginning of the third year, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,600. Calculate the third-year depreciation expense using the revised amounts and straight-line method. Round your answer to the nearest dollar.

$22,631

$23,131

$22,131

$21,131

Solutions

Expert Solution

$22,131

Working:

Step-1:Calculation of straight line depreciation
Straight Line Depreciation = (Cost - Salvage Value)/Useful Life
= (118000-10500)/8
= $ 13,437.50
Step-2:Calculation of book value of asset at the end of year 2
Book Value of asset at the end of 2nd Year = Cost -Accumulated depreciation for 2 years
= $       1,18,000 - $ 26,875.00
= $     91,125.00
Working:
Accumulated depreciation for 2 years = Straight Line depreciation x 2
= $     13,437.50 x 2
= $     26,875.00
Step-3:Calculation of revised straight line depreciation
Straight Line depreciation = (Book value at the beginning of Year 3- Revised Salvage Value)/Revised Remaining Useful Life
= (91125-2600)/4
= $ 22,131

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