A company purchased equipment for $50,000 on January 1 of its first year. The equipment’s original estimated useful life is 8 years and its estimated salvage value is $10,000. The company uses the straight-line method of depreciation. On December 31 of its second year, before year-end adjusting entries have been recorded, the company decides to shorten the estimated useful life by 3 years giving it a total life of 5 years. The company did not change the salvage value and continues to use the straight-line method. How much depreciation expense should be recorded for the second year?

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Ewomazinoadego Ewomazinoadego · Answer 1

Answer:

$7000

Explanation:

The following steps would be taken to determine the answer

1. Calculate depreciation expense given the initial information

2. Determine the book value

3. calculate the depreciation expense using the new information and the book value

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

($50,000 - $10,000) / 8= $5,000

Book value = $50,000 - $5,000 = $45,000

(45,000 - 10,000) / 5 = $7000

Anthougogo Anthougogo · Answer 2

The company should record $8,750 as the depreciation expense for the second year.

Data and Calculations:

Cost of equipment on January 1 = $50,000

Estimated useful life = 8 years

Estimated salvage value = $10,000

Depreciable amount = $40,000 ($50,000 - $10,000)

Annual depreciation expense based on Straight-line method = $5,000 ($40,000/8)

Net book value = $45,000 ($50,000 - $5,000)

Re-estimated total useful life = 5 years

Remaining useful life after the first year = 4 years (5 - 1)

Estimated salvage value = $10,000

Depreciable amount = $35,000 ($45,000 - $10,000)

Annual depreciation expense based on Straight-line method = $8,750 ($35,000/4)

Thus, the depreciation expense for the second year is $8,750.

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