Question

On July 1, 2020, Sarasota Company purchased for $5,760,000 snow-making equipment having an estimated useful life of 5 years with an estimated salvage value of $240,000. Depreciation is taken for the portion of the year the asset is used.

Assume the company had used straight-line depreciation during 2020 and 2021. During 2022, the company determined that the equipment would be useful to the company for only one more year beyond 2022. Salvage value is estimated at $320,000.

Compute the amount of depreciation expense for the 2022 income statement.

What's the depreciation expense?

What's the depreciation base?

Answer 1

--All working forms part of the answer

A	Original Cost	$5,760,000
B	Original salvage value	$240,000
C = A - B	Original depreciation base	$5,520,000
D	Original estimated life (years)	5
E = C/D	Original annual depreciation	$1,104,000
	Depreciation expense for:
F	Year 2020 [$1104000 x 6months/12]	$552,000
G	Year 2021	$1,104,000
H = F+G	Total accumulated Depreciation on 31 Dec 2021	$1,656,000
I = A - H	Book Value at time of revision	$4,104,000
J	New salvage value	$320,000
K = I - J	Depreciation base for 2022	$3,784,000	Answer
L	New remaining life [years]	2
M = K/L	Depreciation expense for 2022	$1,892,000	Answer