Question

Apex Fitness Club uses straight-line depreciation for a machine costing $26,700, with an estimated four-year life...

Apex Fitness Club uses straight-line depreciation for a machine costing $26,700, with an estimated four-year life and a $2,850 salvage value. At the beginning of the third year, Apex determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,400 salvage value.
Required:
1. Compute the machine’s book value at the end of its second year.
2. Compute the amount of depreciation for each of the final three years given the revised estimates

1.

Cost

Accumulated depreciation 2 years

Book value at point of revision

2.

Book value at point of revision

Revised salvage value

Remaining depreciable cost

Years of life remaining

Revised annual depreciation year (3-5)

Business   Accounting   
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Homework Answers

Answer #1

Depreciation under Straight line method = (Cost - Salvage value) / Estimated useful life

= ($26,700 - $2,850) / 4

= $5,962.5

1. Cost = $26,700

Accumulated depreciation 2 years = $5,962.5 * 2 = $11,925

Book value at point of revision = Cost - Accumulated depreciation

= $26,700 - $11,925

= $14,775

2. Book value at point of revision = $14,775

Revised salvage value = $2,400

Remaining depreciable cost = Book value at point of revision - Revised salvage value

= $14,775 - $2,400

= $12,375

Years of life remaining = 3

Revised annual depreciation year (3-5) = Remaining depreciable cost / Years of life remaining

= $12,375 / 3

= $4,125

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