Question

Windsor, Inc. purchased a piece of equipment for $82,100. It estimated an 8-year life and a $1,700 salvage value. At the end of year four (before the depreciation adjustment), it estimated the new total life to be 10 years and the new salvage value to be $34,450. Compute the revised annual depreciation. (Round answer to 0 decimal places, e.g. 5,275.)

Revised annual depreciation $ ________

Answer 1

Depreciation expense = (Cost- Salvage value)/useful life

= ( 82,100 - 1,700)/8

= $10,050

Depreciation for 3 years

= 10,050*3

= $30,150

Book value at the end of year 3

= 82,100 - 30,150

= $51,950

Now the remaining life is 7 years

Salvage value = 34,450

Revised depreciation

= ( Book value - Revised salvage value)/ Remaining useful life

= ( 51,950 - 34,450)/7

= $2,500 per year.

Therefore the revised annual depreciation = $2,500 per year.

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