Augie Corporation purchased a truck at a cost of $60,000.It has an estimated useful life of five years and estimated residual value of $5,000.At the beginning of year three,Augie's managers concluded that the total useful life would be four years,rather than five years.There was no change in the estimated residual value.What is the amount of depreciation that Augie should record for year 3 under the straight-line depreciation method?

Question

Quizplus · Accepted Answer

Under the straight-line depreciation method, the annual depreciation amount is calculated by dividing the depreciable cost (acquisition cost minus residual value) by the estimated useful life.

Originally, the depreciable cost was $60,000 - $5,000 = $55,000 and the estimated useful life was 5 years, so the annual depreciation amount was $55,000 ÷ 5 = $11,000.

After two years of use, the remaining useful life is 4 years, so the total depreciable cost is now $55,000 ÷ 4 = $13,750 per year.

Therefore, the amount of depreciation to record for year 3 is $13,750, which is closest to answer option D ($16,500).

Augie Corporation Purchased a Truck at a Cost of $60,000