Question

Marcus Photography purchased photographic equipment for $110,000. The equipment was to be used for ten years and had a $10,000 estimated residual value. After the company took four years of straight-line depreciation, it decided that the equipment would instead have a $6,000 residual value and an estimated useful life of 12 years. Calculate depreciation expense that should be recorded in year 5. (Show your work)

Answer 1

Cost of equipment = $ 110,000

Residual value= $ 10000

Life = 10 years

Depreciation as per straight line method = ( Cost of Asset - residual value) / Life of Asset

Depreciation per year = ( $ 110000 - 10000) / 10

= $ 10000

Depreciation for the first 4 years = $ 10000

Value of Equipment at the beginning of fifth year = $ 110000 - 40000 = $ 70000

Now, Revised residual value = $ 6000

and Revised useful life of asset = 12 years

Depreciation Expense in year 5 = ( 70000 - 6000 ) / 12

= $ 5333.33

Depreciation expense that should be recorded in year 5 = $ 5,333