In: Accounting
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
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.