Question

In: Accounting

[10] XYZ, Inc. purchased equipment Jan. 1, 2012. The cost was $500,000. Salvage value was $50,000...

[10] XYZ, Inc. purchased equipment Jan. 1, 2012. The cost was $500,000. Salvage value was
$50,000 and the useful life was 5 years. The company decided to depreciate the equipment using the
straight line method. After three years of depreciating the equipment and three years of maintaining
the equipment very well, the company realized that the original estimates were too aggressive. The
company estimated that the equipment should last another five years (eight years in total) and salvage
value will most likely be $60,000 at the end of 2019. Please show a chart that provides depreciation
expense for each year, and accumulated depreciation at the end of each year. Show any other item
that will help you with this analysis.

Expert Solution

	2012	2013	2014	2015	2016	2017	2018	2019
Depreciation for the year	$90,000	$90,000	$90,000	$34,000	$34,000	$34,000	$34,000	$34,000
Accumulated depriciation	$90,000	$180,000	$270,000	$304,000	$338,000	$372,000	$406,000	$440,000

Depreciation as per estimate of useful life of 5 years and and salvage value of $50,000

Depreciation=(Cost of equipment-Salvage value)/Useful life

Depreciation for Year 2012=($500,000-$50,000)/5

Depreciation for year 2012=$90,000

Accumulated depreciation as at year ended 2012=$90,000

Depreciation for year 2013=$90,000

Accumulated depreciation as at year ended 2013=$90,000+$90,000=$180,000

Depreciation for year 2014=$90,000

Accumulated depreciation as at year ended 2014=$180,000+$90,000=$270,000

Book value of asset as on 1 Jan 2015=$500,000-$270,000=$230,000

Depreciation as per new estimates=(Book value as on 1 Jan 2015-Salvage value)/Remaining useful life

=($230,000-$60,000)/5

Depreciation for 2015=$34,000

Note:Each year depreciation as per straight line method is $34,000

Accumulated Depreciation as at year ended 2015=$270,000+$34,000=$304,000

Accumulated Depreciation as at year ended 2016=$304,000+$34,000=$338,000

Accumulated Depreciation as at year ended 2017=$338,000+$34,000=$372,000

Accumulated Depreciation as at year ended 2018=$372,000+$34,000=$406,000

Accumulated Depreciation as at year ended 2019=$406,000+$34,000=$440,000

ekkarill92 answered 1 year ago

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