Question

Proctor Papers purchased a machine on January 1, 2020 at a cost of $380,000 with an estimated residual value of $30,000 at the end of its estimated useful life of 8 years. On January 1, 2020 Proctor Paper estimates that the machine only has a remaining life of 5 years and a residual value of $20,000. Proctor Paper uses straight-line depreciation. Depreciation expense for 2022 would be

A - $48,500

B - $54,500

C - $57,000

D - $72,000

Answer 1

Cost of machine = $380,000

Salvage value = $30,000

Estimated useful life = 8 years

Annual depreciation expense = (Cost of machine - Salvage value)/Estimated useful life

= (380,000 - 30,000)/8

= 350,000/8

= $43,750

Accumulated depreciation for 2 years = Annual depreciation expense x 2

= 43,750 x 2

= $87,500

Book value at the end of year 2
Cost	380,000
Accumulated depreciation for 2 years	- 87,500
Book value at point of revision	$292,500

Book value at point of revision	292,500
Revised salvage value	- 20,000
Revised depreciable cost	$272,500
Remaining useful life	5 years
Annual depreciation for final 5 years	272,500/5 = $54,500

Depreciation expense for 2022 would be $54,500

Correct option is (B)

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