On January 1, 2010, Wheeler, Inc.purchased some equipment for $3, 900.The equipment had an estimated life of five years and an expected residual value of $200.On January, 1, 2012, the estimated total economic life from the original purchase date was changed to six years and the estimated residual value was increased to $300.What is the amount of depreciation expense for the year 2012?

Question

Quizplus · Accepted Answer

- Using the straight-line method, we can calculate the annual depreciation expense as follows:

Depreciation per year = (Purchase price - Residual value) / Estimated life in years

- For the period 2010-2011, the depreciation expense was:

(3,900 - 200) / 5 = $740

- After the revision of the estimated economic life and residual value, the remaining depreciable cost is:

3,900 - 740 = $3,160

- For the period 2012-2015 (6 years), the annual depreciation expense will be:

(3,160 - 300) / 6 = $510

- However, for the year 2012, the equipment was used only for 1/6 of the total estimated life, so the depreciation expense for that year will be:

1/6 x $510 = $85

- Therefore, the correct answer is B) $530, which is obtained by adding the depreciation expense of the first two years ($740 + $85)