Question

EXPLAIN ABC Inc purchased a machine on January 1, 2015, for $111,433. At the time of...

EXPLAIN

ABC Inc purchased a machine on January 1, 2015, for $111,433. At the time of purchase, the machine was estimated to have a life of seven years and a residual value of $37,750. On January 1 2017, the company determined that the machine had a total useful life of ten years (another eight years left) and a residual value of $45,000. If the company uses the straight-line method of depreciation, what will be the depreciation expense for the machine in 2017?

Select one:

a. $5,672.59

b. $7,150.11

c. $8,304.13

d. None of these

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Answer #2

a. $5,672.59

For the first 2 year machine will be depreciated on the basis of 7 year life.
After that it will be depreciated on the basis of revised 8 years remaiing life at that time.
Step-1:Calcute Book value as at january 1, 2017
Straight Line depreciation = (Cost-salvage)/Expected Life = (111433-37750)/7 = $10,526.14
Depreciation for first 2 years = $10,526.14 x 2 = $21,052.29
Book Value as at January 1, 2017 = Cost-Depreciation expenses for 2 years
= $ 1,11,433 - $21,052.29
= $90,380.71
Step-2:Calculate Depreciation expenses based on new life.
Depreciation expenses for 2017 = (Beginning book value-Salvage Value)/Useful Life
= (90380.71-45000)/8
= $ 5,672.59
answered by: anonymous
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