Question

Equipment was purchased at the beginning of 2016 for $1,700,000. At the time of its purchase, the equipment was estimated to have a useful life of six years and a salvage value of $200,000. The equipment was depreciated using the straight-line method of depreciation through 2018. At the beginning of 2019, the estimate of useful life was revised to a total life of ten years (from the beginning Jan 1, 2016) and the expected salvage value was changed to $50,000.

9.         The amount to be recorded for depreciation for 2019, reflecting these changes in estimates, is $??

                        EXACT AMOUNT – DON’T ROUND

Answer 1

Cost of equipment = $1,700,000

Useful life = 6 years

Salvage value = $200,000

Annual depreciation expense = ( cost of equipment- Salvage value)/Useful life

= (1,700,000-200,000)/6

= $250,000

Accumulated depreciation for 3 years = Annual depreciation expense x 3

= 250,000 x 3

= $750,000

Book value of equipment at January 1, 2019 = Cost of equipment - Accumulated depreciation for 3 years

= 1,700,000-750,000

= $950,000

Revised remaining useful life = 7 years

Revised salvage value = $50,000

Revised depreciable cost = Book value of equipment at January 1, 2019- Revised salvage value

= 950,000-50,000

= $900,000

Revised annual depreciation expense = Revised depreciable cost/Revised Useful life

= 900,000/7

= $128,571.4286

The amount to be recorded for depreciation for 2019, reflecting these changes in estimates, is $128,571.4286.