Big Rock Times Corporation (BRT) acquired equipment on January 1, 2012, for $300,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2015, BRT Corporation revised the total useful life of the equipment to 6 years and the estimated salvage value to be $10,000. Compute the book value of the equipment as of December 31, 2015, if BRT Corporation uses straight-line depreciation.

Question

Quizplus · Accepted Answer

The straight-line depreciation formula is:
(Depreciation Expense) = (Cost - Salvage Value) / Useful Life

Using the original estimates:
(Depreciation Expense) = ($300,000 - $25,000) / 10 = $27,500 per year

After the revision:
(Depreciation Expense) = ($300,000 - $10,000) / 6 = $48,333.33 per year

To calculate the book value as of December 31, 2015, we need to calculate the accumulated depreciation.
For the original estimates: Accumulated Depreciation = $27,500 x 4 = $110,000
For the revised estimates: Accumulated Depreciation = $48,333.33 x 1.5 = $72,500

Book Value = Cost - Accumulated Depreciation
Book Value = $300,000 - $110,000 - $72,500 = $117,500
Therefore, the correct answer is A) $148,333.

Big Rock Times Corporation (BRT) Acquired Equipment on January 1