Question

In: Accounting

The Donut Stop acquired equipment for $23,000. The company uses straight-line depreciation and estimates a residual...

The Donut Stop acquired equipment for $23,000. The company uses straight-line depreciation and estimates a residual value of $3,400 and a four-year service life. At the end of the second year, the company estimates that the equipment will be useful for four additional years, for a total service life of six years rather than the original four. At the same time, the company also changed the estimated residual value to $2,000 from the original estimate of $3,400.

Required:

Calculate how much The Donut Stop should record each year for depreciation in years 3 to 6.

Cost of the equipment:

Less: accumulated depreciation (year 1 & 2):

Book value, end of year 2:

Less: new residual value:

New depreciable cost:

Remaining service life:

Annual depreciation in years 3 to 6

Solutions

Expert Solution

Correct Answer:

year

opening book value

Depreciation Expense

Ending book value

1

$ 23,000.00

$   4,900.00

$ 18,100.00

2

$ 18,100.00

$   4,900.00

$ 13,200.00

3

$ 13,200.00

$   2,800.00

$ 10,400.00

4

$ 10,400.00

$   2,800.00

$ 7,600.00

5

$    7,600.00

$   2,800.00

$ 4,800.00

6

$    4,800.00

$   2,800.00

$ 2,000.00

Working:

Original Cost

$   23,000

Salvage Value original

$      3,400

Original Depreciable base

$   19,600

Original Life

4 Years

Original Straight Line depreciation (SLM)

$      4,900

At the end of 2 years

Original Cost

$ 13,200

Salvage Value original

$ 2,000

Original Depreciable base

$ 11,200

Original Life

4 Years

Original Straight Line depreciation (SLM)

$ 2,800

End of answer.

Thanks.


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