Equipment costing $80000 with a salvage value of $11000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for year 3 would be O $20917. O $17250. O $10350. O $14450.
Equipment costing $80000 with a salvage value of $11000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for year 3 would be O $20917. O $17250. O $10350. O $14450.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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![### Depreciation Calculation Example
**Problem:**
Equipment costing $80,000 with a salvage value of $11,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for year 3 would be:
- $20,917.
- $17,250.
- $10,350.
- $14,450.
**Solution Steps:**
1. **Calculate Original Annual Depreciation:**
- Cost of Equipment: $80,000
- Salvage Value: $11,000
- Estimated Life: 8 years
\[
\text{Annual Depreciation} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Estimated Life}} = \frac{80,000 - 11,000}{8} = \frac{69,000}{8} = \$8,625
\]
2. **Determine Total Depreciation for First 2 Years:**
\[
\text{Total Depreciation (2 years)} = 8,625 \times 2 = \$17,250
\]
3. **Calculate Revised Depreciation Expense:**
- Remaining Value at Start of Year 3 (after 2 years of depreciation):
\[
\text{Remaining Value} = \text{Cost} - \text{Accumulated Depreciation} = 80,000 - 17,250 = \$62,750
\]
- Revised Remaining Life: 5 years (total) - 2 years (already depreciated) = 3 years
- Revised Annual Depreciation:
\[
\text{Revised Annual Depreciation} = \frac{\text{Remaining Value} - \text{Salvage Value}}{\text{Revised Remaining Life}} = \frac{62,750 - 11,000}{3} = \frac{51,750}{3} = \$17,250
\]
**Answer:**
\[
\$17,250
\]
**Correct Choice:**
- $17,250.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7f5562d6-49ce-4c9c-a9b7-824e476f5d05%2Fcee1d6d0-63c1-41f4-8fbd-faf3c759b2c0%2Fw7eausq_processed.png&w=3840&q=75)
Transcribed Image Text:### Depreciation Calculation Example
**Problem:**
Equipment costing $80,000 with a salvage value of $11,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for year 3 would be:
- $20,917.
- $17,250.
- $10,350.
- $14,450.
**Solution Steps:**
1. **Calculate Original Annual Depreciation:**
- Cost of Equipment: $80,000
- Salvage Value: $11,000
- Estimated Life: 8 years
\[
\text{Annual Depreciation} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Estimated Life}} = \frac{80,000 - 11,000}{8} = \frac{69,000}{8} = \$8,625
\]
2. **Determine Total Depreciation for First 2 Years:**
\[
\text{Total Depreciation (2 years)} = 8,625 \times 2 = \$17,250
\]
3. **Calculate Revised Depreciation Expense:**
- Remaining Value at Start of Year 3 (after 2 years of depreciation):
\[
\text{Remaining Value} = \text{Cost} - \text{Accumulated Depreciation} = 80,000 - 17,250 = \$62,750
\]
- Revised Remaining Life: 5 years (total) - 2 years (already depreciated) = 3 years
- Revised Annual Depreciation:
\[
\text{Revised Annual Depreciation} = \frac{\text{Remaining Value} - \text{Salvage Value}}{\text{Revised Remaining Life}} = \frac{62,750 - 11,000}{3} = \frac{51,750}{3} = \$17,250
\]
**Answer:**
\[
\$17,250
\]
**Correct Choice:**
- $17,250.
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