Question

Delta Machine Company purchased a computerized assembly machine for $135,000 on January 1, 2018. Delta Machine Company estimated that the machine would have a life of four years and a $25,000 salvage value. Delta Machine Company uses the straight-line method to compute depreciation expense. At the beginning of year 3 (2020) Delta discovered that the machine was quickly becoming obsolete and would have little value at the end of its useful life. Consequently, Delta Machine Company revised the estimated salvage to only $5,000. It did not change the estimated useful life of the machine. Compute the depreciation expense for each of the four years.

Answer 1

Purchase value of Machine on January 1, 2018	$135,000
Estimated salvage value	$25,000
Life of machine	4 years
Depreciation Under Straight Line method
Formula
= Purchase value of Asset - Salvage of Asset / Life of Asset
=($ 135,000-25,000)/4 years	= $ 27,500
Depreciation for the year 2018	= $ 27,500
Depreciation for the year 2019	= $ 27,500
Book Value of Machine on January 1, 2020	=$80,000
($135,000-$27,500-$27,500)
Revised estimated salvage value	$5,000
Balance Life of machine	2 years
Each year Depreciation for balance two years
=($ 80,000-5,000)/2 years	= $ 37,500
Depreciation for the year 2020	= $ 37,500
Depreciation for the year 2021	= $ 37,500