A company used straight-line depreciation for an item of equipment that cost $12,000,had a salvage value of $2,000 and a five-year useful life.After depreciating the asset for three complete years,the salvage value was reduced to $1,200 but its total useful life remained the same.Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life.
A)$1,000
B)$1,800
C)$5,400
D)$2,400
E)$2,000

Question

Quizplus · Accepted Answer

The annual depreciation using straight-line method can be calculated as:
Depreciation = (Cost - Salvage value) / Useful life

Initially, the depreciation per year would have been:
Depreciation = ($12,000 - $2,000) / 5 = $2,000

After three years, the total depreciation recorded would be:
Depreciation for 3 years = 3 x $2,000 = $6,000

The book value of the asset after three years can be calculated as:
Book value = Cost - Depreciation for 3 years
= $12,000 - $6,000
= $6,000

Now, the salvage value has reduced from $2,000 to $1,200 but the useful life remains the same. So, the remaining depreciable amount would be:
Depreciable amount = Book value - Salvage value
= $6,000 - $1,200
= $4,800

The remaining useful life is 5 - 3 = 2 years
Therefore, the depreciation to be charged in each of the remaining years would be:
Depreciation per year = Depreciable amount / Remaining useful life
= $4,800 / 2
= $2,400

Hence, the answer is D) $2,400.

A Company Used Straight-Line Depreciation for an Item of Equipment