Question

# Revision of Depreciation Equipment with a cost of \$379,700 has an estimated residual value of \$40,700,...

Revision of Depreciation Equipment with a cost of \$379,700 has an estimated residual value of \$40,700, has an estimated useful life of 15 years, and is depreciated by the straight-line method. a. Determine the amount of the annual depreciation. \$ b. Determine the book value after 5 full years of use. \$ c. Assuming that at the start of the year 6 the remaining life is estimated to be 14 years and the residual value is estimated to be \$39,900, determine the depreciation expense for each of the remaining 14 years. \$

a. Annual depreciation: \$22600

Depreciable value = Cost - Residual value = \$379700 - \$40700 = \$339000

Annual depreciation = Depreciable value/Estimated useful life = \$339000/15 = \$22600

b. Book value after 5 full years of use: \$266700

Depreciation for 5 years = \$22600 x 5 = \$113000

Book value after 5 years = \$379700 - \$113000 = \$266700

c. Depreciation expense for each of the remaining 14 years: \$16200

Revised remaining depreciable cost = \$266700 - \$39900 = \$226800

Revised remining useful life = 14 years

Depreciation expense = \$226800/14 = \$16200

Note: The change in the residual value and estimated useful life are changes in accounting estimates and hence are accounted for prospectively.

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