Iverycoast Inc.purchased a van on January 1,2015,for $800,000.Estimated life of the van was 5 years,and its estimated residual value was $90,000.Iverycoast uses the straight-line method of depreciation.At the beginning of 2017,the corporation revised the total estimated life of the asset from 5 years to 6 years.The estimated residual value remained the same as estimated earlier.Calculate the depreciation expense for the year 2017.

Question

Quizplus · Accepted Answer

The formula for straight-line depreciation is:

Depreciation expense = (Cost - Residual value) / Estimated life

Using this formula, we can calculate the annual depreciation expense for the first two years:

Depreciation expense for 2015 = ($800,000 - $90,000) / 5 = $142,000
Depreciation expense for 2016 = ($800,000 - $90,000) / 5 = $142,000

At the beginning of 2017, the corporation revised the total estimated life of the asset from 5 years to 6 years. This means that the remaining life of the asset at the beginning of 2017 is 4 years.

Using the same formula, we can calculate the depreciation expense for 2017:

Depreciation expense for 2017 = ($800,000 - $90,000) / 6 = $106,500

Therefore, the correct answer is C) $106,500.