Lundholm Company purchased a machine for $100,000 on January 1, 2011. Lundholm depreciates machines of this type by the straight-line method over a 10-year period using no salvage value. Due to a change in sales patterns, on January 1, 2013, management determines the useful life of the machine to be a total of five years. What amount should Lundholm record for depreciation expense for 2013? The tax rate is 40%.
A)$20,000.
B)$16,000.
C)$17,778.
D)$26,667.

Question

Quizplus · Accepted Answer

The machine was originally depreciated over 10 years, so the annual depreciation was $10,000 ($100,000/10). After two years, the accumulated depreciation is $20,000, leaving a book value of $80,000. With the revised useful life of 5 years total (3 remaining years), the new annual depreciation is $26,667 ($80,000/3).

Lundholm Company Purchased a Machine for $100,000 on January 1