Mary Company purchased equipment on January 1, 2008, for $400, 000.At the date of acquisition, the equipment had an estimated useful life of eight years with a $40, 000 salvage value, and it was depreciated using the straight-line method.On January 1, 2013, based on updated information, Mary decided that the equipment had a total estimated life of ten years and no salvage value.Depreciation expense on the equipment in 2013 should be
A)$40, 000
B)$45, 000
C)$25, 000
D)$35, 000

Question

Quizplus · Accepted Answer

The equipment was initially depreciated over 8 years with a $40,000 salvage value, resulting in an annual depreciation of $45,000 (($400,000 - $40,000) / 8). By January 1, 2013, 5 years of depreciation had been recorded, leaving a book value of $175,000 ($400,000 - $225,000). With the revised estimate of a 10-year total life and no salvage value, the remaining book value of $175,000 is depreciated over the remaining 5 years, resulting in an annual depreciation expense of $35,000 ($175,000 / 5).

Mary Company Purchased Equipment on January 1, 2008, for $400