Jack's Copy Shop bought equipment for $240,000 on January 1, 2016. Jack estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Jack decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2017?
A)$80,000.
B)$32,000.
C)$40,000.
D)$60,000.

Question

Quizplus · Accepted Answer

Under the straight-line method, the depreciation per year is calculated by dividing the cost of the asset by its useful life.

Original depreciation expense = $240,000 / 3 = $80,000 per year

However, when Jack decides to use the equipment for 5 years, the revised depreciation expense per year becomes:

Revised depreciation expense = $240,000 / 5 = $48,000 per year

To find the revised depreciation expense for 2017, we need to subtract the depreciation expense for 2016 ($80,000) from the new annual depreciation expense ($48,000) to get the change in depreciation expense for 2017:

Change in depreciation expense for 2017 = $48,000 - $80,000 = -$32,000

The negative sign indicates that the depreciation expense has decreased from the original estimate.

To find the revised depreciation expense for 2017, we need to add the change in depreciation expense to the original depreciation expense for 2017:

Revised depreciation expense for 2017 = $80,000 + (-$32,000) = $48,000

Therefore, the revised depreciation expense for 2017 is $40,000.

Jack's Copy Shop Bought Equipment for $240,000 on January 1