Question

Sholpan Company purchased a machine for $90,000. The machine had an estimated residual value of $6,000...

Sholpan Company purchased a machine for $90,000. The machine had an estimated residual value of $6,000 and an estimated useful life of 8 years. After two full years of experience with the machine, it was determined that its total useful life would be only 5 years instead of 8. The estimated residual value remains unchanged at $6,000. Compute depreciation expense for the third year. Sholpan Company uses straight-line depreciation.

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Answer #1

Answer:

Depreciation expense in year 3 is $21000.

Explanation:

Depreciation expense using Straight line methods = (Cost of Machine - residual value) / useful life

= ($90000 - $6000) / 8

= $84000 / 8

= $10500

Accumulated Depreciation in two years = $10500 * 2 = $21000

Book value After two years = Cost of Machine - Accumulated Depreciation in two years

= $90000 - $21000

= $69000

Now according to question total useful life will be 5 years;

Depreciation expense in year 3 = (Book value of Machine - Residual value) / Remaining useful life

($69000 - $6000) / 3

= $63000 / 3

= $21000.

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