Custom Closets purchased office fixtures on January 1. The cost was $16,000, and the fixtures had a residual value of $6,000. The fixtures were given a useful life of 8 years. After the end of three years, it was determined that the fixtures would be obsolete in 2 more years and their residual value would still be $6,000. What will be the depreciation under the straight-line method to the nearest dollar be for the fourth year? (Round your final answer to the nearest dollar.)
A)$1,250
B)$2,000
C)$3,125
D)$3,750

Question

Quizplus · Accepted Answer

Initially, the annual depreciation is calculated based on the original useful life of 8 years: $ \frac{\$16,000 - \$6,000}{8} = \$1,250 $ per year. After 3 years, the total depreciation would be $ \$1,250 \times 3 = \$3,750 $. The book value at the end of 3 years is $ \$16,000 - \$3,750 = \$12,250 $. With the revised useful life of 5 years in total and 3 years already passed, there are 2 years left. The new annual depreciation is $ \frac{\$12,250 - \$6,000}{2} = \$3,125 $.

Custom Closets Purchased Office Fixtures on January 1