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On January 1, 2019, Happy Company purchased equipment for $114,000. The equipment was assigned a useful...

On January 1, 2019, Happy Company purchased equipment for $114,000. The equipment was assigned a useful life of 15 years and a $6,000 residual value. Happy Company will use the straight-line method to depreciate the equipment. On January 1, 2023, Happy Company revised the life of the equipment from 15 to 20 years. On January 1, 2026, Happy Company revised the life of the equipment from 20 to 12 years. On January 1, 2028, Happy Company spent $58,000 to overhaul the equipment. This capital expenditure resulted in Happy Company changing the life of the equipment from 12 years to 25 years and adjusting the residual value to be $5,650 at the end of the 25 years. Calculate the book value of the equipment at December 31, 2030.

Solutions

Expert Solution

Depreciation under SLM = (Book Value – Residual Value) / Estimated Useful Life

a)

Depreciation from 2019 to 2022:

    = (114,000 – 6000)/ 15 = $7,200 Per Year

Book Value at the end = 114,000 – (7200 * 4) = $85,200

b)

Depreciation from 2023 to 2025:

   Book Value = 85,200

   Remaining Life (20 – 4) = 16 Years

      Depreciation = (85200 – 6000)/ 16 = $4,950 per year

Book value at the end of 2025 = 85200 – (4950 * 3) = $70,350

c)

Depreciation from 2026 to 2027

Book Value = 70,350

Remaining Life (12 – 7) = 5 Years

    Depreciation = (70350 – 6000)/5 = $12,870 per year

Book Value at the end of 2028 = 70350 – (12870 * 2) = $44,610

d)

Depreciation from 2028 to 2030

Book Value = 44,610 + 58,000 (renovation) = $102,610

Remaining Life (25 – 9) = 16

Residual value = 5650

Depreciation = (102,610 – 5650)/ 16 = $6,060 Per Year

Book Value at the end of 2030 = 102,610 – (6060 * 3) = $84,430

ekkarill92 answered 1 year ago
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