Nicholson Company purchased equipment on January 1, 2016, for $80,000 with an estimated salvage value of $20,000 and estimated useful life of 8 years. On January 1, 2018, Nicholson decided the equipment will last 12 years from the date of purchase. The salvage value is still estimated at $20,000. Using the straight-line method the new annual depreciation will be:

Question

Quizplus · Accepted Answer

The original depreciation was $7,500 per year ($80,000 - $20,000) / 8 years. After 2 years, $15,000 has been depreciated, leaving a book value of $65,000. With a remaining life of 10 years (12 total - 2 already passed), the new depreciation is ($65,000 - $20,000) / 10 = $4,500 per year.

Nicholson Company Purchased Equipment on January 1, 2016, for $80,000