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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Revision of depreciation

Equipment with a cost of $180,000 has an estimated residual value of $14,400, has an estimated useful life of 16 years, and is depreciated by the straight-line method, (a) Determine the amount of the annual depreciation. (b) Determine the book value at the end of the tenth year of use. (c) Assuming that at the start of the eleventh year the remaining life is estimated to be eight years and the residual value is estimated to be $10,500, determine the depreciation expense for each of the remaining eight years.

(a)

To determine

Straight-line Depreciation: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the salvage value is shown as below:

Depreciation cost = (Cost of the asset-residual value)Estimated useful life of the asset

To determine: the amount of annual depreciation

Explanation

Determine the amount of annual depreciation.

Cost of the equipment =$180,000

Residual Value =$14,400

Estimated Useful life =16 years

AnnualDepreciation = (Original cost of the asset-residual value)Estimated useful life of the asset

(b)

To determine
the book value at the end of the tenth year of use.

(c)

To determine
the revised annual depreciation.

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