Lavonne Company purchased a machine on July 1, 2010, for $80, 000.The machine has an estimated useful life of 5 years with a salvage value of $10, 000.It is being depreciated using the straight-line method.On January 1, 2012, Lavonne reevaluated the machine's useful life and now believes it will continue for another 6 years (for a total of 7 1/2 years)and have no salvage value at the end of its useful life.Depreciation expense for the year ended December 31, 2012, related to this machine would be
A)$14, 000
B)$10, 667
C)$ 9, 833
D)$ 8, 167

Question

Quizplus · Accepted Answer

First, we need to calculate the depreciation expense for the original estimated useful life of 5 years using the straight-line method:
Depreciation per year = (Cost - Salvage value) / Useful life
Depreciation per year = ($80,000 - $10,000) / 5 years
Depreciation per year = $14,000

For the year ended December 31, 2012, Lavonne reevaluated the useful life to be a total of 7 1/2 years, which means there are still 6 years of useful life left from January 1, 2012. We need to calculate the new depreciation expense for the remaining 6 years using the straight-line method:
Depreciation per year = (Cost - Salvage value) / Useful life
Depreciation per year = ($80,000 - $0) / 6 years
Depreciation per year = $13,333.33

Since the reevaluation occured on January 1, 2012, only half of the depreciation expense for that year will be based on the new estimate. The total depreciation expense for 2012 would be:
Depreciation expense for 2012 = Depreciation expense for the old estimate (Jan 1, 2012) + Depreciation expense for the new estimate (July 1, 2012 to Dec 31, 2012)
Depreciation expense for 2012 = ($14,000 / 2) + ($13,333.33 / 2)
Depreciation expense for 2012 = $7,000 + $6,666.67
Depreciation expense for 2012 = $13,666.67

Therefore, the answer is C) $9,833.

Lavonne Company Purchased a Machine on July 1, 2010, for $80