Question

Gordon Company purchased an asset on January 1, 2016 for $25,000. At that time, Gordon Company estimated the residual value would be $1,000 at the end of the asset's projected ten-year life. It is now January 1, 2020; Gordon Company now estimates the asset will have a residual value of $1,500, and has a remaining useful life of four years (will last until the end of 2023). Assuming Gordon Company uses the straight-line method, what will be the depreciation expense recorded for 2020?

A) $3,475

B) $2,937.50

C) $2,400

D) none of the above

Answer 1

Answer:

Option A: $ 3,475

Explanation:

Depreciation (as per SLM) = (Cost - salvage value) / Number of years

A	Cost	$    25,000
B	Residual / Salvage Value	$      1,000
C	Number of years	10
(A-B)/C=D	Depreciation (SLM)	$      2,400
E	Number of years (from 2016 to 19)	4
F=D*E	Depreciation from 2016 to 19	$      9,600
	Depreciation for 2020 (25000-9600-1500)/4	$      3,475

Hence, option 'A' is correct and rest all are incorrect.

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