A company purchased equipment for $400,000 which was estimated to have a useful life of 14...

A company purchased equipment for $400,000 which was estimated to have a useful life of 14 years with a salvage or residual value of $22,000 at the end of that time. Depreciation has been recorded for 2 years on a straight-line basis. In 2020 (year 3), it is determined that the total estimated life should be 17 years with a residual or salvage value of $16,000 at the end of that time.

What is the net book value a the time of the change? write out the number, include a comma where appropriate, do not include decimals, do not use a dollar sign (i.e. 200,000)

What is depreciation expense for 2020?

Expert Solution

Depreciation under Straight line method

	depreciation = (Cost of the asset - Salvage Value)/ Useful life of asset
	= ($400,000 - $22,000)/14
	=$378000 / 14
	=$20000 per year

Depreciation expense per year = $27000

Year	Opening Carrying Amount	Depreciation Expense	Book value
2018	4,00,000	27,000	3,73,000
2019	3,73,000	27,000	3,46,000

In 2020 (year 3 ) It is determined that the estimated life is 17 years and residual value of $16000

Therefore Depreciation Expense in 2020 = Book value - Salvage ) / Useful life of Asset

=(346000 - 16,000 ) / 17

= 330,000 / 17

= 19,412

ekkarill92 answered 2 years ago

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