Question

At the beginning of 2018, Swifty Company acquired equipment costing $166,000. It was estimated that this equipment would have a useful life of 6 years and a salvage value of $16,600 at that time. The straight-line method of depreciation was considered the most appropriate to use with this type of equipment. Depreciation is to be recorded at the end of each year. During 2020 (the third year of the equipment’s life), the company’s engineers reconsidered their expectations and estimated that the equipment’s useful life would probably be 7 years (in total) instead of 6 years. The estimated salvage value was not changed at that time. However, during 2023 the estimated salvage value was reduced to $5,000. Indicate how much depreciation expense should be recorded each year for this equipment, by completing the following table. Year Depreciation Expense and Accumulated Depreciation for the years 2018, 2019, 2020, 2021, 2022, 2023, 2024.

Can you please show how you got the answer, Thank you

Answer 1

	2018	2019	2020	2021	2022	2023	2024
Depreciation Expense	$ 24,900	$ 24,900	$ 19,920	$ 19,920	$ 19,920	$ 25,720	$ 25,720
Accumulated Depreciation	24,900	49,800	69,720	89,640	109,560	135,280	161,000

Depreciation expense per year originally estimated = $ ( 166,000 - 16,600 ) / 6 = $ 24,900.

Depreciation expense prospectively charged from 2020 = ( Cost - Accumulated Depreciation - Salvage Value ) / Remaining Useful Life = $ ( 166,000 - 2 x 24,900 - 16,600) / ( 7 - 2 ) = $ 19,920 per year.

Depreciation expense per year from 2023 = ( Cost - Accumulated Depreciation - Salvage Value ) / Remaining Useful Life = ( 166,000 - ( 2 x 24,900 - 3 x 19,920) - 5,000 ) / 2 = $ 25,720