In: Accounting
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
$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 | ||||||||||||||