Angstrom 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, Angstrom's managers concluded that the total useful life would be four years, rather than five. There was no change in the estimated residual value. What is the amount of depreciation that Angstrom should record for year 3 under the straight-line method?
A) $15,500
B) $8,250
C) $16,500
D) $11,000

Question

Quizplus · Accepted Answer

The total depreciation expense for the truck under the straight-line method is ($60,000 - $5,000) / 5 years = $11,000 per year.

However, since the useful life was revised from 5 years to 4 years, we need to adjust the remaining useful life for the truck by subtracting the number of years already passed (i.e. 2). Therefore, the truck has 2 years of remaining useful life.

To calculate the depreciation for year 3, we divide the remaining undepreciated cost ($60,000 - 2 x $11,000 = $38,000) by the remaining useful life (2 years), which gives us $19,000 in depreciation for year 3.

However, we know that the truck's total estimated residual value is still $5,000, so we need to subtract that from the depreciation for year 3 to get the book value of the asset at the end of year 3.

$19,000 - $5,000 = $14,000

Therefore, the amount of depreciation that Angstrom should record for year 3 under the straight-line method is $16,500 ($11,000 + $5,500 adjustment to prior years' depreciation).

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