On Jan 01, 2020, Company bought a machine for $300,000. The estimate of useful life was 6 years; Salvage value of $30,000. Straight-line method was used to record depreciation at the end of each year. On Jan 01, 2022 (3rd year of machine's life), Company reconsidered revised the estimated of useful life to 7 years (in total, instead of the original estimate of 6 years). (Estimated salvage value was unchanged). BUT, on Jan 01, 2025, estimated salvage value was reduced to $5,000. Instructions: Indicate how much depreciation expense should be recorded each year by completing this table. Year 2020 2021 2022 2023 2024 2025 2026 Annual Depreciation Expense (12 months) Accumulated Depreciation FYI: Revising depreciation, per the text, requires that you determine how much of the assets cost has not yet been depreciated. This is the assets "Book Value". The formula to calculate BV = Asset Cost – Accumulated Depreciation. So, after first year, BV would be 255k.
On Jan 01, 2020, Company bought a machine for $300,000. The estimate of useful life was 6 years; Salvage value of $30,000. Straight-line method was used to record depreciation at the end of each year. On Jan 01, 2022 (3rd year of machine's life), Company reconsidered revised the estimated of useful life to 7 years (in total, instead of the original estimate of 6 years). (Estimated salvage value was unchanged). BUT, on Jan 01, 2025, estimated salvage value was reduced to $5,000. Instructions: Indicate how much depreciation expense should be recorded each year by completing this table. Year 2020 2021 2022 2023 2024 2025 2026 Annual Depreciation Expense (12 months) Accumulated Depreciation FYI: Revising depreciation, per the text, requires that you determine how much of the assets cost has not yet been depreciated. This is the assets "Book Value". The formula to calculate BV = Asset Cost – Accumulated Depreciation. So, after first year, BV would be 255k.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
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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I am so lost on this practice problem, could you please explain what this is asking?
Transcribed Image Text:On Jan 01, 2020, Company bought a machine for $300,000. The estimate of useful life was 6
years; Salvage value of $30,000. Straight-line method was used to record depreciation at the
end of each year.
On Jan 01, 2022 (3rd year of machine's life), Company reconsidered revised the estimated of
useful life to 7 years (in total, instead of the original estimate of 6 years). (Estimated salvage
value was unchanged). BUT, on Jan 01, 2025, estimated salvage value was reduced to $5,000.
Instructions: Indicate how much depreciation expense should be recorded each year by
completing this table.
Year
2020
2021
2022
2023
2024
2025
2026
Annual Depreciation
Expense (12 months)
Accumulated
Depreciation
FYI: Revising depreciation, per the text, requires that you determine how much of the assets
cost has not yet been depreciated. This is the assets "Book Value". The formula to calculate
BV = Asset Cost – Accumulated Depreciation. So, after first year, BV would be 255k.
-
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