Garrison Corporation purchased a depreciable asset for $420,000 on January 1, 2005.The estimated salvage value is $42,000, and the estimated total useful life is 9 years.The straight-line method is used for depreciation.In 2008, Garrison changed its estimates to a useful life of 5 years with a salvage value of $70,000.What is 2008 depreciation expense?

Question

Quizplus · Accepted Answer

To calculate depreciation expense in 2008, we need to find the remaining book value of the asset at the beginning of the year, and then subtract the new estimated salvage value.

Book value at beginning of 2008 = original cost - accumulated depreciation
Accumulated depreciation = (original cost - salvage value) / useful life
Accumulated depreciation through 2007 = ($420,000 - $42,000) / 9 years x 4 years = $168,000
Book value at beginning of 2008 = $420,000 - $168,000 = $252,000

New depreciable base = $252,000 - $70,000 = $182,000
New annual depreciation expense = $182,000 / 5 years = $36,400 x 3 years (2008-2010) = $109,200
Therefore, the 2008 depreciation expense was $109,200 - $84,000 (depreciation through 2007) = $25,200 per year. 
Total depreciation expense for 2008 would be $84,000 (through 2007) + $25,200 (in 2008) = $109,200 or choice C.

Garrison Corporation Purchased a Depreciable Asset for $420,000 on January